How much is my business worth? Valuation methods for SMEs

Your business is worth what a willing buyer will pay, but most small UK businesses are priced in one of four ways: a multiple of profit, the value of net assets, discounted future cash flow, or the cost of starting a similar business from scratch. Profitable trading businesses are usually valued on earnings; asset-heavy or loss-making ones on assets. Most valuations blend more than one method to cross-check the figure.

Which valuation method should you use?

The right method depends on what drives value in your business. Use this list to match your business to a starting point.

• If you make steady profits, start with an earnings multiple.
• If you hold property or investments, or make losses, start with net assets.
• If profits are expected to grow sharply or vary year to year, consider discounted cash flow.
• If you are early stage with little profit, look at entry cost and sector-specific measures.
• If your sector has its own rule of thumb, use it as a cross-check, not the answer.

How does an earnings multiple valuation work?

An earnings multiple values the business as its sustainable annual profit multiplied by a figure that reflects risk and growth. It is the most common way to price a profitable small business.

1. Take recent profits from your profit and loss account, usually the last two or three years.
2. Adjust them. Add back one-off costs and the owner’s above-market salary or personal expenses; deduct a market salary for any role the owner fills.
3. Settle on maintainable earnings, the profit a buyer can expect to continue.
4. Apply a multiple based on comparable sales, sector, size and risk.
5. Adjust for cash and debt to reach the price for the shares.

ACCA’s valuing your business checklist says the price/earnings approach “is only applicable to established firms with a profitable history” and that “smaller businesses are usually valued at lower multiples than larger companies”.

Illustration only: a company with adjusted maintainable profit of £200,000 and an agreed multiple of 4 has an enterprise value of £800,000. Add £100,000 surplus cash and deduct a £150,000 loan, and the shares are worth £750,000. Real multiples vary widely by sector and deal.

How does an asset-based valuation work?

An asset valuation adds up what the business owns and subtracts what it owes. Start with net assets on the balance sheet, then restate items at market value: property, vehicles, stock and debtors.

This method suits property and investment companies and low-profit businesses. It usually understates a profitable trading business, because it ignores goodwill.

What about discounted cash flow and entry cost?

Discounted cash flow (DCF) values the business as the present value of the cash it will generate in future. You forecast cash flows, then discount them at a rate that reflects the risk; small changes in either assumption move the result a lot.

Entry cost asks what it would cost to build a similar business from scratch: equipment, recruitment, product development and marketing. ACCA lists it as an option, and it sets a rough ceiling a buyer might pay before choosing to start their own.

What increases or reduces the value?

Buyers pay more for lower risk. ACCA’s checklist highlights these factors:

• Reliable, growing profits and clean, up-to-date accounts
• Customer spread, with no single customer dominating sales
• Skilled staff on clear contracts, so the business does not depend on the owner
• Intellectual property and strong supplier and customer relationships
• The reason for sale; a forced sale or wind-up “is likely to be worth less”

Owners often overvalue their own businesses; ACCA warns “don’t be disappointed if you don’t get your original asking price”. Tight working capital and director personal guarantees on company debt also need resolving before a sale.

What tax do you pay when you sell?

Most owners selling shares pay Capital Gains Tax on the gain. For 2026/27, GOV.UK lists main rates of 18% and 24% and an annual exempt amount of £3,000.

Business Asset Disposal Relief taxes qualifying gains at 18% from 6 April 2026. To qualify on shares, you normally need at least 5% of the shares and voting rights, and to have been an officer or employee of a trading company, for 2 years before the sale.

The cut to £500,000 was published on 29 October 2026. Anti-forestalling rules apply to unconditional contracts made before 6 April 2027 but completed later, so timing a sale purely for tax may not work.

What to do now

If you are thinking of selling in the next year or two, take these steps.

1. Get three years of accounts up to date and filed.
2. Work out adjusted profit, removing one-off and personal costs.
3. Try at least two methods and compare the results.
4. Check BADR eligibility and the 6 April 2027 limit change with your accountant.
5. Get an independent valuation before you talk to buyers.

Our guide on how to sell a business covers the sale process.

Frequently asked questions

What is the most common way to value a small business?

A multiple of adjusted, maintainable profit. Asset-heavy or loss-making businesses are more often valued on net assets.

Does HMRC have a set formula for valuing private company shares?

No single formula. HMRC’s Shares and Assets Valuation team values unquoted shares for Capital Gains Tax and Inheritance Tax, and you can ask it to check a value after a disposal using form CG34.

When should I send form CG34?

At least 3 months before your tax return filing date. For UK property that is not your home, you must still report and pay within 60 days, using an estimate if needed.

How much Capital Gains Tax will I pay on selling my company?

Qualifying gains under Business Asset Disposal Relief are taxed at 18% in 2026/27, on up to £1 million of lifetime gains. Other gains are taxed at 18% or 24% after the £3,000 annual exempt amount.