LBO Calculator

LBO Calculator: calculate lbo for your business. Formula, benchmarks, and practical tips included.

A business valuation calculator estimates what your company is worth using three complementary methods: the Revenue Multiple approach (popular for high-growth SaaS and tech companies), the EBITDA Multiple approach (standard for profitable SMEs and private equity targets), and Discounted Cash Flow analysis (the academically rigorous method that values future cash flows in today's money). Using all three and comparing the results gives a defensible valuation range rather than a single number that any sophisticated buyer or investor will immediately challenge. Profit Margin Calculator and Markup Calculator are closely related tools for understanding profitability and cash generation before running a valuation.

Business valuations are used in M&A transactions, shareholder disputes, management buyouts, equity fundraising, tax planning (particularly for inheritance tax and share schemes), and succession planning. The appropriate method depends heavily on the stage and type of business: pre-revenue startups are typically valued on ARR multiples or user metrics; mature manufacturing businesses on EBITDA multiples; capital-heavy asset businesses on net asset value. This calculator focuses on the three most commonly used approaches for established businesses generating revenue.

Select your industry preset to auto-fill the Revenue and EBITDA multiples with current market benchmarks — these update based on recent M&A transaction data.
Enter your Annual Revenue and EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation). Both figures should come from your most recent 12-month trading accounts.
Enter your current Annual Free Cash Flow for the DCF model, along with your expected growth rate and an appropriate discount rate (typically your WACC — Weighted Average Cost of Capital).
Adjust the projection years and terminal EBITDA multiple. The terminal multiple represents what a buyer would pay for your final year's EBITDA as an exit multiple.
Compare the three valuations — if they cluster closely, your valuation is well-supported. If they diverge widely, identify which method favours your business story for the intended audience (growth investors vs traditional acquirers).

The three business valuation formulas explained

Revenue Multiple: Value = Annual Revenue × Industry Multiple. Simple and widely used for early-stage or high-growth businesses where profitability is deferred. SaaS companies at 100%+ ARR growth might command 10–20× revenue; stable SMEs typically achieve 0.5–2×. Multiples compress during market downturns and expand during bull markets.

EBITDA Multiple: Value = EBITDA × Industry Multiple. The most common approach in private equity and M&A. EBITDA proxies for operating cash generation and removes accounting choices (depreciation policy, financing structure) that distort comparison. Typical ranges: 4–6× for traditional SMEs, 8–15× for technology businesses, 3–5× for hospitality and retail.

DCF: Value = Σ(FCF_y × (1+g)^y ÷ (1+r)^y) + Terminal Value. Where FCF is free cash flow, g is growth rate, r is discount rate (WACC), and y is year. Terminal value = EBITDA_n × exit multiple ÷ (1+r)^n. Worked example: £100,000 FCF, 10% growth, 15% discount rate, 5-year projection → Year 1 DCF: £110,000 ÷ 1.15 = £95,652. Summed over 5 years plus terminal value typically produces the most conservative estimate.

Interpreting your business valuation results

What to do when the three methods disagree

When Revenue Multiple, EBITDA Multiple, and DCF valuations cluster within 20% of each other, you have a robust, defensible valuation. When they diverge — which is common — the spread tells you something important: a business with a high revenue multiple but low EBITDA multiple is likely burning cash to grow; a business with a high EBITDA multiple but low DCF value may have strong current profits but poor long-term growth prospects. Sophisticated acquirers will calculate all three; knowing which favours your narrative lets you lead with the right method in a sale process.

For fundraising from venture capital, revenue multiples dominate because investors are paying for future growth. For trade sales and private equity buyouts, EBITDA multiples are the language of choice because they reflect sustainable cash generation. The DCF is most important for valuing long-duration cash flows — infrastructure, property, or businesses with very predictable revenue — and is required for formal HMRC valuations (e.g. for EMI option grants or inheritance tax). Always back up any valuation with a qualified accountant or corporate finance adviser before entering a transaction.

Business tips and best practices

Use "normalised EBITDA" — add back one-off costs (legal disputes, non-recurring restructuring) and subtract owner's personal expenses run through the business before applying any multiple.
Revenue multiples for SaaS businesses are typically applied to ARR (Annual Recurring Revenue), not total revenue — exclude one-off implementation fees and professional services that won't recur.
The discount rate in your DCF should reflect the risk of the business: a stable, contracted-revenue business might use 10–12%; an early-stage tech startup should use 20–30% or higher.
EBITDA multiples compress during rising interest rate environments — a business worth 8× EBITDA in 2021 may only command 5× in 2024 as the cost of leverage financing has increased.
For businesses below £500k EBITDA, expect a 1–2× discount to headline multiples due to lack of scale, key-person dependency, and buyer pool limitation.
Prepare a "vendor due diligence" information pack before any sale — businesses with clean management accounts, audited financials, and documented recurring contracts command a significant premium.

UK SME M&A average EBITDA multiple was 5.8× in 2023, down from 7.2× in 2021 (Argos Soditic Mid-Market Monitor).
Global SaaS median revenue multiple fell from 16× ARR in 2021 to 6× in 2023 as interest rates rose (KeyBanc SaaS Survey).
80% of private business sales fail or are renegotiated due to issues discovered during due diligence (KPMG UK SME Transaction Report).
Businesses with documented recurring revenue streams sell for 25–40% more than those with equivalent but transactional revenue (Bain & Company).

Common mistakes to avoid

Using revenue instead of EBITDA for the EBITDA multiple — a surprisingly common error that produces wildly inflated valuations.
Using a discount rate that is too low for the business's risk profile — applying an 8% WACC to an early-stage business with no contracted revenue produces a DCF that no buyer will accept.
Forgetting to normalise EBITDA for owner's salary — if the owner pays themselves £50k in a business that would require a £120k CEO replacement, add back £70k before applying any multiple.
Confusing enterprise value (EV) with equity value — EV is the total business value including debt. To get equity value (what shareholders receive), subtract net debt: Equity Value = EV − Debt + Cash.

Business valuations produced by this calculator are illustrative estimates for planning and educational purposes only. They do not constitute a formal business valuation, independent expert opinion, or financial advice. Formal valuations for tax purposes (HMRC share scheme valuations, inheritance tax, stamp duty), legal proceedings, or regulated transactions must be prepared by a qualified accountant, RICS-registered valuer, or corporate finance professional. Industry multiples used as presets are indicative benchmarks derived from publicly available transaction data and may not reflect current market conditions. Always obtain professional advice before entering any business sale, acquisition, fundraising, or restructuring transaction.