It’s the question every owner asks first: what is my business actually worth? The honest answer is “it depends” — on your industry, profitability, how reliant the business is on you, and who’s buying. But valuation isn’t guesswork. A handful of well-understood methods do most of the work. If you haven’t yet, our complete guide to selling a business sets the wider context.
1. Valuation isn’t just for selling
A current valuation is useful long before you go to market. It sets a benchmark to measure growth against, informs succession and estate planning, supports finance applications, and settles partner buy-ins fairly. Getting one early also reveals your value gaps while you still have time to fix them.
2. The methods, at a glance
Valuation methods fall into three families: earnings-based (what the business earns), market-based (what similar businesses sold for), and asset-based (what it owns). Most small-business valuations lean on earnings, cross-check against the market, and use assets as a floor.
3. Capitalisation of future maintainable earnings
CFME is the most common method for established small businesses. You work out the “maintainable” earnings the business can reliably repeat — normalising for one-off costs and revenues — then apply a capitalisation multiple that reflects risk. Steady, predictable businesses earn higher multiples.
4. EBITDA and profit multiples
Take normalised EBITDA and multiply by an industry-appropriate factor. Small businesses commonly trade somewhere between two and five times, with stronger multiples for recurring revenue and a defensible market position. The art is in the normalisation.
5. Seller’s discretionary earnings (SDE)
For owner-operated businesses, SDE adds the owner’s salary, super and perks back onto EBITDA to show the full benefit a single owner-operator receives. It typically attracts multiples in the 1.5–3.5 range.
6. Asset-based valuation (the floor)
Add up the assets, subtract the liabilities, and you have net asset value. This suits asset-heavy businesses or those being wound down. For a profitable operating business it usually understates value, because it ignores goodwill. Treat it as a floor, not the answer.
7. Discounted cash flow (DCF)
DCF projects future cash flows and discounts them to today’s value. It’s powerful for businesses with predictable, growing cash flows — but complex and sensitive to assumptions, which makes it overkill for many small businesses.
8. Market and comparable sales
This values your business against similar ones that recently sold. The challenge for SMEs is finding genuinely comparable data, since most private sales aren’t public. It’s most useful as a sanity check alongside an earnings method.
9. Normalising earnings and goodwill
Before any multiple is applied, earnings are normalised — stripping out one-off events and adjusting owner’s pay to a market rate. Goodwill is the gap between that earnings-based value and the net assets: reputation, location, customer relationships and brand.
10. Industry “rules of thumb”
Some industries have shorthand multipliers — a multiple of revenue, or a figure per customer. They’re quick but rough averages that ignore quality, growth and risk. Use them for a first sniff-test, never as your final number.
11. Why get an independent valuation
Owners almost always value with their hearts. An accredited, independent valuer brings objectivity and produces a report buyers and lenders trust. You can find an accredited business valuer in our directory.
12. How to lift your valuation
The levers are consistent: grow and stabilise revenue, reduce owner dependence, lock in recurring income, document your systems, and clean up your books. That’s the work of the prepare stage of the exit journey — and the earlier you start, the more it pays.
This guide is general information only and does not take account of your personal circumstances. It is not financial, tax or legal advice. Speak to a qualified adviser before acting.