Strip the owner’s package and the one-offs out of the accounts to get to real adjusted EBITDA. Value it on a multiple for the trade, and against the balance sheet. Then test that price against your own numbers — your target return, and the funding you can actually raise.
This calculator tells you what a deal is worth once you have found one and know its numbers. ExitRadar is the other half of the problem: which UK businesses are approaching an exit at all. We score companies on Companies House filings and director demographics, and publish the ones where a good business meets a real reason to sell.
Small private companies in the UK are bought on a multiple of their earnings, with the cash and the debt settled separately. This calculator follows that convention rather than the valuation methods used for listed companies, because those depend on market prices that do not exist for a private business. It does three things in order: rebuild the earnings the way a buyer would, apply four independent tests to them, and tell you where the four agree.
Filed profit is nearly always the wrong number for valuing an owner-managed business, and it is wrong in both directions at once. The owner may be paying themselves £20,000 and calling the rest profit, which flatters the business; or paying themselves £150,000 for a job worth £60,000, which buries it. The accounts may carry a one-off legal bill, a failed project or personal costs that a normal year would not.
So the earnings are rebuilt:
Adjusted EBITDA = filed EBITDA + owner’s salary and benefits − market-rate replacement cost + one-off and discretionary costsFree cash flow before tax = adjusted EBITDA − maintenance capital spendingFree cash flow after tax and working capital = the above − corporation tax − cash absorbed by working capitalThe replacement cost is the line most people leave out and the one that matters most. If you are buying a business you intend to run yourself, you are still the manager it needs, and paying yourself nothing does not make the business more profitable — it just moves where the cost sits. Put in what the job is actually worth on the open market.
Maintenance capital spending is what the business must spend every year to keep operating as it is: replacing vans as they wear out, not buying three more. It does not affect the multiple, because our multiple ranges are EV/EBITDA, but it does affect what the business can pay a lender, which is why it feeds the funding side.
Working capital is the next line people ask about, and the answer here rests on an assumption worth stating plainly: every figure on this page assumes the business STAYS THE SAME SIZE. Working capital is a stock, not a flow — the cash tied up in stock, unpaid invoices and retentions only moves when the business grows or shrinks. Hold the size flat and the movement really is nil, which is why the default is zero and why leaving it there is the consistent choice rather than a lazy one.
The assumption stops holding the moment you expect the business to grow, and it bites hardest in the trades where working capital is heaviest — wholesale funding stock, construction carrying retentions, staffing paying weekly and collecting in sixty days. Grow a business like that by a quarter and it can swallow a year of profit doing nothing wrong. So the line is there to be filled in when you are not assuming flat, and it is deducted AFTER tax, because a movement in working capital is a balance-sheet movement rather than a deductible cost — the stock going up does not reduce your corporation tax bill.
A negative figure is perfectly legitimate if the business collects before it pays. The reason to be honest about it is that it comes straight off the cash a lender looks at when deciding what you can service.
The page keeps these apart deliberately, because collapsing them is the commonest mistake an inexperienced buyer makes. Two of the figures try to estimate what the business is worth to a buyer in general. The other two are about YOU — what you can justify paying and what you can raise — and they would be different numbers for the next person to look at the same business.
None of the four is a valuation in the professional sense, and this page does not produce one. Two of them are estimates of value:
The other two are constraints on you:
Reading them together is the point. A business worth £900,000 that you can only fund to £550,000 is not a valuation problem, it is a structuring problem, and it is solved with a seller note or more equity rather than by talking the price down. A business worth £900,000 that is only worth £600,000 at the return you need is the opposite: the price is fair and the deal is not for you.
The most common error in SME deal arithmetic is to price goodwill at a multiple of earnings and then add the net assets on top. It double-counts. The multiple already values the trading business INCLUDING the stock, the debtors and the plant, because those are what produce the earnings being multiplied. Add the balance sheet again and you are paying twice for the same forklift.
A worked example of the error: earnings of £200,000 and net assets of £500,000, priced at "3×", comes out at £1.1m — which is 5.5× the earnings, while the table says 3×. The buyer thinks they are disciplined and are not.
So net assets get their own test instead. They are a FLOOR: the point below which a seller would rather wind the business up and sell the assets than accept your offer. If the floor sits above the top of the earnings range, that is worth knowing, and it usually means either the assets are surplus to the trade or the earnings are understated.
A multiple of EBITDA gives the value of the business itself, before considering how it happens to be financed. What you actually hand over is different, and the bridge between them is short:
What you pay = (adjusted EBITDA × multiple) + cash in the business − debt and finance repaidTrade creditors are deliberately NOT in that bridge. They are working capital, part of the ordinary operating cycle the multiple already values, and deducting them would be the same double-count in the other direction. Bank debt, asset finance and director loans are, because they are borrowings you either repay or inherit.
The asset basis and the funding total already net off the debt, so no bridge is applied to either. The asset basis is assets less EVERY liability, which includes the borrowings; the funding total is simply cash you put on the table.
One assumption worth naming, because this page does not ask about it: the bridge is written for buying the COMPANY, where you inherit its cash and its borrowings. Plenty of smaller UK deals are asset purchases instead — you buy the trade, the plant and the goodwill, and the seller keeps the cash and settles the debt. On that structure the figure you care about is the business value BEFORE the bridge. Both are on this page; which one applies is a question for your solicitor, not this calculator.
The range you start with is our estimate for the activity you chose. It is an estimate, not a measurement: we hold three and a half million companies’ filed accounts, and filed accounts do not record what anyone paid. We are not going to dress a judgement up as data, so there is no sample size quoted here and no distribution claimed.
Coverage is uneven, and the page says so on the line beneath the range. Some activities carry their own estimate; some fall back to the range for their sector, which is broader; and where we have neither, you get a general small-business range that is not specific to anything. A sector range presented as though it were an activity range would be a more precise claim than we can support.
Move it. Where a business sits within or beyond a range is a judgement about risk, not a calculation: concentrated customers, an owner who is the business, thin margins or a declining sector push down; contracted recurring revenue, a management team that stays, and several buyers competing push up. On a paid ExitRadar report the model does that flexing itself from the company’s measured quality. Here, you do it, and once you have moved the slider the number is yours.
The payback period is how many years of cash a business must generate to cover the price you paid for it. It is one of the few figures every buyer, broker and private-equity firm actually compares deals on, for three reasons: a shorter payback means less time your money is at risk, it strips out accounting judgement and looks only at cash, and it lets you hold two completely different businesses side by side — a four-year payback against a two-year one — without needing to know anything else about either.
This page uses it in both directions. You set the payback period you would accept, which gives the most you can pay and still hit it:
Most you can pay = free cash flow after tax × the payback period you acceptPayback period at this price = the price ÷ free cash flow after taxAnd the funding section reports the payback the price on the table actually gives you, so you can hold the two against each other. Both are measured on the price of the business rather than on the slice you fund with your own money — that is what makes the figure comparable between deals, because an equity-based payback moves with how each buyer happened to arrange their borrowing.
The default is seven years, which is roughly what buying a small private company outright with no borrowing is worth. Set it shorter and you pay less and get your money back sooner; set it longer and you pay more and wait. That is the whole of it, and you can check the arithmetic on the page in one multiplication.
A payback period is the same judgement as a required rate of return, in the unit people actually reason in — seven years is equivalent to wanting about 14% a year, and the page shows that figure beneath the box for anyone who prefers it that way. It is NOT the three or four years implied by the 25% or 30% a searcher quotes as their target, because that is a return on the much smaller amount of their own money they put in after borrowing the rest. Put that number in here and the page values the business on less than half the years an all-cash buyer would, and then reports that every sensible deal is unaffordable.
The borrowing is not missing from the page; it is the funding section, which is where it belongs. Keep the two apart and each answers its own question.
The price comes first and the funding is measured against it. The page starts you at the middle of the earnings valuation and you can type over that, so the question the funding section answers is a real one — can you raise this particular price — rather than an abstract count of what you happen to have.
Then one line per source of money, because that is how a deal is actually put together: a bank facility, a note deferred to the seller, an earn-out, asset finance, and your own cash. Each line has an amount, which is what it puts in, and an annual repayment, which is what it takes back out each year — capital and interest together, as it leaves the bank account. Those are separate figures on purpose: a seller note deferred for two years puts money in now and repays nothing yet, and your own cash never repays at all.
Give a line a rate and a term and the repayment is worked out for you, the same way a bank would work out a loan repayment — the level annual amount that clears the debt over the term. Leave the term blank and you type the repayment yourself, which is what a deferred note or an earn-out usually needs, because neither repays on a schedule.
Annual repayment = amount × rate ÷ (1 − (1 + rate)^−term)Total funding = the sum of the amountsAnnual debt service = the sum of the annual repaymentsDebt service cover = free cash flow after tax ÷ annual debt serviceThe average rate shown beside the debt service covers the borrowed money only. Your own contribution carries no rate, and blending it in with the borrowings would drag the figure below what you are actually paying on the debt — the number sits directly under the annual debt service, where it reads as the rate on exactly that.
Cover is the number a lender looks at first, and this page computes it from your structure rather than asking you to assume one. Around 1.5× is where most UK lenders underwrite SME acquisition debt. Below about 1.25× there is very little room for a bad quarter; below 1× the business cannot pay its own acquisition debt out of trading at all, and the gap has to come from somewhere else.
Two simplifications, both stated so you can allow for them. Corporation tax is charged here on free cash flow BEFORE any acquisition interest, and interest is deductible in reality, so the tax is a little too high and the cash left a little too low — the error runs in the conservative direction on purpose. And the business is assumed not to be carrying its own existing debt service; if it is, that comes off the cash flow before any of this.
It does not verify a single figure you enter. It has no view on whether the accounts are accurate, whether the earnings are repeatable, or whether the owner’s replacement cost you typed is realistic. It asks what working capital absorbs but does not check your answer, and it cannot tell you what the business will need next year. It is not a discounted cash flow: there is no forecast and no terminal value here, deliberately, because a five-year projection of a small private company is a decision dressed as a calculation.
And it holds no company data. There is no lookup, no pre-fill and no search — the activity dropdown identifies nothing. Every figure on the page came from you.
It depends far more on what the business does than on how big it is. A precision engineering business and a beauty salon are both small businesses and do not trade on remotely similar multiples. The calculator starts you at our own estimate for the activity you pick, shown as a range rather than a single number so the uncertainty is visible, and invites you to move it. Treat it as an opening position, not a valuation.
They are the same build-up, one line apart, and this page shows both. Seller’s discretionary earnings adds the owner’s package back to the profit and stops there. Adjusted EBITDA carries on and deducts what it would cost to employ someone to do that owner’s job. On the worked figures above the two differ by exactly the replacement cost, and that single line is the difference between the number a seller has in mind and the number a buyer should pay on.
SDE is shown because brokers quote it, and you need to be able to reconcile their asking price with your own arithmetic. It is NOT valued on here, and it should not be valued on with an EBITDA multiple: SDE is the larger figure, so SDE multiples are conventionally much lower. Applying our activity range to it would inflate the answer by the replacement cost times the multiple — on a business paying its owner £60,000 at a 4.5–8.0× range, that is £270,000 to £480,000 of value that is not there.
No. The multiple already values the assets that produce the earnings, so adding them again pays for the same things twice — and it is the single most common error in small-deal arithmetic. Cash and debt are different: they are not operating assets, which is why they appear in the bridge from business value to what you pay, and the rest of the balance sheet does not.
Less than the business is worth, usually. UK lenders size acquisition debt on cover — free cash flow after tax divided by the annual repayment — and want that around 1.5×, over a term of roughly five years. So the binding constraint is the repayment the business can survive, not the value of what you are buying. Enter the structure you have in mind on this page and it works out the cover you would actually have.
It is a flat rate applied to free cash flow before any acquisition interest, which is a simplification in two directions. Real corporation tax is charged on taxable profit, which differs from cash flow — capital allowances, disallowed costs and loss relief all move it — and interest on acquisition debt is deductible, which this does not credit you for. Treat the figure as an indication and take advice before committing to a structure.
Questions worth answering for this kind of business before the multiple matters. They decide more deals than the arithmetic does.
Valuing your own business rather than buying one? The owner's calculator works from the same model, but reports what your business is worth rather than what you should pay.
This calculator is for preliminary screening only and is not financial, tax or investment advice. Figures are whatever you enter — nothing is verified against Companies House or any other source. The multiple ranges are our own estimates, not measured transaction data. Take professional advice before making an offer.