Company valuation: how businesses are actually valued

A company is worth what a willing buyer will pay — valuation methods exist to estimate that number before a buyer shows up. Three approaches do most of the work: earnings multiples, discounted cash flow, and asset-based valuation. This guide explains each in plain English, and what actually moves the number.

The three methods that matter

Earnings multiples (most common for SMEs). Take a measure of sustainable profit — usually EBITDA or adjusted profit — and multiply it by a factor typical for your sector and size. A business making £500k adjusted EBITDA at a 4× multiple is indicatively worth £2m. The argument is never the arithmetic; it's what counts as sustainable profit and which multiple applies.
Discounted cash flow (DCF). Project future cash flows and discount them back to today's money at a rate reflecting risk. Theoretically the purest; practically the most sensitive to optimistic assumptions — small changes in growth or discount rate swing the answer wildly.
Asset-based. What the balance sheet's assets would fetch, net of liabilities. The floor value — most relevant for property-heavy or distressed businesses.

What genuinely drives the number up (or down)

Owner dependence — the single biggest SME discount. If the business is the owner, the buyer is buying a job, not a company.
Quality of earnings — recurring revenue beats project revenue; contracted beats habitual; diversified beats one-big-client.
Clean, current records — buyers price uncertainty as risk. Organised, well-documented operations and information directly support the multiple, and messy ones invite discounts (or kill deals in diligence).
Growth story with evidence — a pipeline you can show beats a forecast you assert.

Why two experts value the same business differently

Because valuation is structured argument, not measurement. Each side chooses defensible-but-favourable answers to: what's the real sustainable profit? which comparable companies set the multiple? how risky is the future? A seller's adviser and a buyer's adviser can both be professionally right and £1m apart. That's why the evidence — the records, the data room, the documented operations — matters as much as the model.

Where V3TR4 fits (and where we don't)

V3TR4's M&A research service does the evidence layer: market mapping, comparable screening, structured information packs and diligence support materials — prepared for you and your advisers. We are not a corporate finance adviser and don't produce formal valuations or arrange transactions; we make the people who do faster and better-armed. And if your records are the thing discounting your value, that's fixable — ideally a year or two before you sell, when it still compounds.