A multiple of profit is only the start. What a buyer pays depends on which profit figure you use, what comes off for debt, and whether the price can actually be serviced by the business afterwards. This works through all three, including whether a lender would fund it.
Business valuation calculator
An indicative valuation on an adjusted EBITDA multiple, with the equity bridge, a revenue cross check, a net asset floor and an acquisition funding test. Nothing is sent anywhere and nothing is stored.
1. The trading figures
2. Adjustments to profit
A buyer values what the business earns under normal ownership, not what it reported. Positive figures increase profit, negative figures reduce it. Type a minus sign for a deduction.
3. The multiple
4. The balance sheet
5. Could a buyer fund it?
Cross checks
Could it be funded?
Buyers value adjusted EBITDA, not reported profit
The profit in the accounts is the profit under the current owner, with their salary, their car, their choices about what to run through the company and their one off costs. A buyer wants to know what the business earns under normal ownership, so both sides work from an adjusted figure.
The adjustments that are usually accepted are a difference between the owner’s actual remuneration and the market cost of employing someone to do their job, genuinely non recurring costs, personal expenditure run through the company, and a market rent where the premises are owned personally and are not part of the sale. On the default figures those adjustments move EBITDA by £35,000, which at five times is £175,000 of value. Getting them right is worth more than arguing about the multiple.
What is not accepted is a long list of costs that will happen again. If you had an exceptional bad debt in each of the last three years, it is not exceptional, it is a cost of doing business. A buyer’s accountant will strip those out in due diligence, and doing it yourself first is better than having it done to you.
What actually moves the multiple
Sector matters less than people expect. What moves a multiple most is size, because larger businesses are less risky and attract more buyers, and dependency on the owner, because a business that stops working when one person leaves is worth substantially less than one that does not.
After those two, the things that raise a multiple are recurring or contracted revenue, a diverse customer base, a management team that will stay, consistent growth, and clean records. The things that lower it are customer concentration, a single key supplier, thin margins, lumpy project revenue, and any dependency on a licence, contract or relationship that may not transfer.
Small owner managed businesses generally trade at low single digit multiples of adjusted EBITDA. Multiples rise with size and with the quality factors above, and businesses with genuinely recurring revenue command more than those without. These are broad observations rather than figures you should rely on, which is why the multiple is something you enter here rather than something this calculator picks for you. If you want a real view on the range for your business, a corporate finance adviser or a business transfer agent who sells in your sector will give you one.
Enterprise value is not what you get paid
This is the most commonly misunderstood part of a business sale. A multiple of EBITDA gives you enterprise value, which is the value of the business operations regardless of how they are financed. What you actually receive for your shares is enterprise value minus the debt, plus the cash, plus anything surplus to trading.
So a business with an enterprise value of £2 million and £500,000 of debt sells for around £1.5 million. Sellers who have anchored on the enterprise value figure get an unpleasant surprise at heads of terms. Note that debt here means everything: bank loans, hire purchase, outstanding invoice finance, and often director loans and any deferred tax that has to be settled.
Working capital is the other adjustment, and it causes more argument at completion than anything else. Most deals complete on a normal level of working capital, defined and measured at completion, with the price adjusted up or down for any difference. If you strip cash and stock out of the business before completion, expect the price to fall by the same amount.
The net asset floor
An earnings multiple can produce a figure below what the business owns, particularly in an asset heavy business having a poor year. In that situation the earnings method is telling you the trade is worth less than the assets, and the sensible valuation is at or near net assets rather than a multiple of profit.
The calculator flags this when it happens. If your net asset figure is above the earnings range, a buyer is effectively purchasing the assets and getting the trade for nothing, and you should be looking hard at whether the business is worth more broken up than sold as a going concern.
Turnover multiples are a sanity check, nothing more
Valuing on a multiple of turnover ignores whether the business makes any money, which is why it is used mainly where profit is distorted or the business is growing fast and reinvesting. Included here purely as a cross check: if the turnover method and the earnings method give wildly different answers, look at your margin. A business with a five percent EBITDA margin will look far too expensive on any normal turnover multiple, and that mismatch is information.
A price the business cannot service will not complete
This is where valuations meet reality, and it is the part most valuation calculators leave out entirely. A buyer funding an acquisition with debt has to service that debt out of the profits of the business they are buying. Lenders test this with a debt service cover ratio: annual profit divided by annual loan payments. Most want to see comfortably above 1.25 times, and they run it on the adjusted figure with a stress applied.
Push the price up in the calculator and watch the cover ratio fall. At some point the number goes below what a lender will accept, and at that point the deal does not fund regardless of whether the price is fair. That is often why a business does not sell at the price the seller wants: not because a buyer disagrees with the valuation, but because nobody can raise the money.
The usual bridge is deferred consideration, where part of the price is paid out of future profits, or an earn out linked to performance. Both reduce the day one funding requirement, and both mean the seller carries risk after completion. Our business loan calculator prices the acquisition facility itself in more detail, and if the target owns its premises the commercial mortgage affordability calculator will show how much of the price the property can carry, which is normally the cheapest part of the funding stack.
What this does not include
- Any actual valuation of your business. This is arithmetic on the figures you enter, and the multiple is your assumption, not our opinion.
- Tax on the sale, including Business Asset Disposal Relief, which materially affects what a seller nets.
- The difference between a share sale and an asset sale, which changes the tax, the liabilities transferred and often the price.
- Deal structure. Cash on completion, deferred consideration, earn outs and loan notes are worth very different amounts even where the headline price is the same.
- Warranties, indemnities and retentions.
- Anything about whether a buyer exists at that price, which is ultimately the only valuation that matters.
Funding an acquisition or a management buyout
Acquisition funding is one of the harder things to place, because a lender is underwriting a business the borrower does not own yet. It usually comes together as a stack rather than a single facility: a term loan on the trade, a commercial mortgage if there is property, asset finance against the plant, and deferred consideration from the seller for the rest. We assemble that across the market. Send us the target’s accounts and the price under discussion and we will tell you what is fundable.
Or try our other calculators.
This calculator is provided for illustration and general information only. It is not a valuation, not investment or tax advice, not a quotation and not an offer of finance. It performs arithmetic on figures and multiples that you supply, and the multiple you choose drives the answer more than anything else. A real valuation requires a corporate finance adviser or a valuer who knows your sector and has seen your accounts. Nothing here should be relied on in negotiating or agreeing a price. Bolton Business Finance Ltd is a commercial finance broker and not a lender, and is not authorised or regulated by the Financial Conduct Authority. We arrange non-regulated, business purpose commercial finance only.