How to Value a Private Company in the UK

Why a private company is harder to value than a listed one

A listed company is priced every day by people risking their own money, and the price carries everything the market knows about its growth, its risk and its management. A private company has no such price. It has accounts prepared for a different purpose, an owner whose pay and expenses run through the business as they choose, a customer base that may be five relationships, and often a single buyer in the room. Each of those makes the number less certain; none means it cannot be done well.

It also has no liquidity. A shareholder in a listed company can sell tomorrow; a shareholder in a private company sells when a buyer appears, on that buyer's terms, after months of process. Whatever method you use, you are valuing an asset that is hard to sell, run by people who may leave, with figures nobody outside has tested against a market. The methods below exist to make that judgement disciplined, not to remove it.

The information you need before you start

Valuation is an exercise in evidence, and the first job is to know what evidence you hold. In the UK the base layer is public: the accounts filed at Companies House, which give a balance sheet for every company and a profit and loss account for larger ones. Smaller companies may have filed accounts that omit the profit and loss account altogether, so the public record can tell you what a company owns and owes and nothing about what it earns.

• Filed statutory accounts for three to five years — the only figures anyone outside has signed off, even if only the directors
• Management accounts for the current year to date, and for the last full year so they can be reconciled to the filed figures
• Forecasts, with the assumptions behind them, labelled as projections and never merged into the trading history
• The balance sheet at the latest date: cash, debt, debtors, creditors, stock, fixed assets, and anything owed to or by the directors
• The owner's total remuneration and benefits, related-party transactions, and any cost or income that would change with ownership
• Customer and supplier concentration, contract terms, and the people the revenue depends on

Label every figure with where it came from and what that is worth. A filed profit, a management-stated one and a forecast are three grades of evidence, and a valuation that treats them as one is wrong in a direction you cannot see. Where a figure is not stated, record that it is not stated rather than filling it with something plausible; the gaps decide what you ask for next.

Normalising earnings

Every earnings-based method starts from maintainable earnings: the profit a new owner could expect in a normal year with the business run at arm's length. Reported profit is rarely that figure. The owner may pay themselves above or below a market salary; family members may be on the payroll; the company may rent its premises from the owner at a figure set for reasons other than the market; and one-off costs and gains sit in the year they happened.

The adjustments are legitimate when they are true. A salary normalised to what a replacement manager would cost is legitimate. A "one-off" legal cost that appears in each of the last three years is not one-off; it is a cost of doing business in that sector. Development spend that is capitalised every year is a cash cost whatever the accounting policy says. For each adjustment ask three questions: is there a reason, is there evidence, and would it survive a buyer's accountant? Build a sceptical figure beside the seller's figure and value on both, because the negotiation will take place between them.

The main methods and what each one answers

No single method is right for every business, because each answers a different question. The discipline is to run those that apply, understand why they differ, and weigh them by the nature of the business rather than by which produces the number you would like. Business valuation methods used in M&A covers each in depth; in summary:

Weighing the methods

Weights should follow the business. A contracting firm with thin margins and a heavy plant fleet leans on net assets and an earnings multiple; a subscription software business with a real forecast leans on DCF and comparable deals; a two-person consultancy is an SDE business whatever the spreadsheet says. When two methods disagree widely, the disagreement is information: the forecast is not credible, the assets are not earning, or the adjustments to earnings are too generous. Resolve the reason before you average the numbers.

Present the result as a range rather than a point, and let the width reflect how complete the information is and how far the methods disagree. A valuation built on three years of filed accounts, a reconciled management pack and relevant comps deserves a narrower range than one built on a forecast and a sector rule of thumb.

The adjustments that move value

Whatever the method, four features of a private company move its value more than the method itself does. Each should be an explicit adjustment, visible on the page, rather than buried in a multiple.

• Size. Smaller businesses are riskier than larger ones in the same sector — fewer customers, thinner management, less access to finance — and the market prices them accordingly. Apply the size adjustment explicitly and state what it is based on.
• Customer concentration. A business that would lose a large share of its revenue if one customer left is worth less than the same earnings spread across fifty. Price it, structure around it, and read customer concentration risk in M&A for how to measure it.
• Owner dependence. If the relationships, the technical knowledge and the decisions sit with the person leaving, the earnings are partly theirs, not the company's. The stronger the dependence, the larger the discount and the more of the price that belongs in deferred or contingent consideration.
• Growth and its credibility. Historical growth from a flat base is worth more than projected growth from a hockey-stick forecast. Carry into the valuation the growth the evidence supports, and price a forecast as a projection.

From enterprise value to equity value

The earnings methods produce an enterprise value: what the operating business is worth to whoever owns it, regardless of how it is financed. What a shareholder is paid for the shares is the equity value — enterprise value less debt and debt-like items, plus cash and cash-like items. The two differ by net debt, and a seller with a large cash balance or a large director's loan will find that difference is most of the conversation. How to calculate enterprise value walks through the bridge, and the enterprise value calculator does the arithmetic in both directions.

A valuation is not a price

A valuation is an opinion of what a business is worth on stated assumptions. A price is what one buyer agrees to pay one seller, in a structure, at a moment. The same enterprise value can be paid as cash at completion, as cash plus deferred consideration over two years, as a lower cash sum with an earn-out on future performance, or with the seller keeping a stake and taking a vendor loan note. Each structure shifts risk between the parties, and a seller will accept a lower certain sum or a higher contingent one depending on how they weigh the two.

For a buyer the price is also bounded from above by their own returns. What a business is worth to the market and what it is worth to a specific buyer, financed a specific way, at a required rate of return, are different questions. A disciplined buyer knows the maximum price at which the hurdle still clears and does not exceed it because a valuation says the business is "worth" more. The valuation frames the negotiation; the structure and the returns model settle it.

Valuations prepared for tax, court, accounting or shareholder-dispute purposes follow rules of their own and are a matter for a specialist adviser. This guide is about value in a transaction.

Common mistakes

• Applying a multiple to the seller's adjusted EBITDA without building a sceptical figure of your own
• Merging a forecast year into the trading history, or quoting growth from the best year to the projected one
• Using one method because it is familiar, and ignoring what a second method says when it disagrees
• Quoting a multiple on equity value, or comparing an EV multiple with a price for the shares
• Treating a sector rule of thumb as evidence when relevant completed deals are available
• Forgetting that the balance sheet is part of the price: surplus cash, debt, working capital above or below a normal level, and what the directors are owed
• Valuing the business at the market's price without checking the price your own returns can support

How TrueValue's five-method engine does it

TrueValue's M&A valuation software runs all five methods — net asset value, discounted cash flow, seller's discretionary earnings, EBITDA multiple and comparable transactions — in one deterministic engine, weights them by sector and by the nature of the business, and reports each method's answer beside the blend and its range. The engine is seeded from the target's own extracted accounts, with every period labelled as filed, management-stated or a projection; a figure the accounts do not state stays blank and is named as missing rather than defaulted. The AI writes the commentary — what drives the number and what a buyer would push back on — and has no path by which it can alter a figure. Comparable transactions come from your own library and are reduced to a median only where enough relevant deals exist; asking-price benchmarks from the marketplace are shown as a separate series and never mixed into the valuation.