Aug 17
When a shareholder wants to leave a private company, there is rarely one automatic valuation formula. The appropriate figure depends on the company’s profitability, assets, future prospects, debt, cash position, shareholder rights and the size and nature of the stake being transferred.
The process should normally begin with reliable financial information, particularly where profits need adjusting for unusual or owner-specific costs. This is also important when preparing a business for sale and during thorough due diligence.
Several methods may be considered, with more than one often used as a cross-check.
| Approach | How it works | Commonly suited to |
|---|---|---|
| Earnings multiple | Maintainable EBITDA or earnings multiplied by an appropriate market multiple, with debt and cash considered | Established profitable trading businesses |
| Discounted cash flow | Forecast cash flows discounted to a present value using an appropriate risk-adjusted rate | Businesses where future cash flows can be forecast reliably |
| Net asset value | Assets adjusted towards appropriate values less liabilities | Property, investment and asset-heavy businesses |
| Dividend-based approach | Sustainable distributions considered against an appropriate required return | Some income-producing minority interests |
There is no universally correct EBITDA multiple for a private company. Sector conditions, growth, recurring revenue, customer concentration, management dependence and transaction evidence can all materially influence the result.
A 20% shareholding does not necessarily equal 20% of the value of the entire company. A valuer must examine the rights attached to those shares, including voting powers, dividend rights, transfer restrictions and provisions in the company’s articles or shareholder agreement.
Where disagreements arise, specialist advice can help establish an appropriate basis of value. SCC’s guide to disputes between shareholders and partners explains the issues, while our forensic accounting and expert witness team can assist where independent valuation evidence is required.
A properly drafted family charter or shareholder agreement can also establish how a future exit or valuation should be handled.
Suppose a business reports adjusted EBITDA of £900,000 and an appropriate multiple of five is used. That gives an enterprise value of £4.5 million. If the company has £600,000 of net debt, the illustrative equity value becomes £3.9 million.
However, if a working shareholder receives a salary £40,000 below a commercial market level, maintainable EBITDA may need to be reduced before applying the multiple. Similar adjustments can arise for exceptional costs, connected-party rent, personal expenditure or unusually high remuneration.
Accurate monthly management accounts can make those adjustments easier to identify. Our SME business advisory team can also help assess underlying performance.
The seller will normally focus on the amount retained after tax rather than simply the headline valuation. UK and Irish rules differ significantly, so cross-border shareholders should obtain specific advice from cross-border tax advisers.
| Position | UK and Northern Ireland | Republic of Ireland |
|---|---|---|
| Entrepreneur relief | Business Asset Disposal Relief | Revised Entrepreneur Relief |
| Qualifying CGT rate | 18% from 6 April 2026 | 10% |
| Lifetime qualifying gains limit | £1 million | €1.5 million from 1 January 2026 |
| Main CGT rate outside relief | Up to 24% for individuals | 33% |
| Relevant ownership period | Normally two years for qualifying company shares | Three-year conditions apply |
HMRC confirms that qualifying Business Asset Disposal Relief gains are taxed at 18% for disposals from 6 April 2026, subject to the £1 million lifetime limit. Irish Revenue confirms that Revised Entrepreneur Relief applies a 10% CGT rate and that the lifetime limit increased to €1.5 million for qualifying gains arising from 1 January 2026.
Our guide to the April 2026 dividend and BADR increases explains the UK changes in more detail.
After a disposal, eligible taxpayers can ask HMRC for a post-transaction valuation check on form CG34. HMRC requires the form at least three months before the relevant tax return filing date.
Where funding an exit could affect solvency or working capital, SCC’s business recovery and restructuring specialists can assess the implications.
There is no standard multiple that applies to every SME. Comparable transactions, sector conditions, growth, earnings quality and risk should all be considered. Current mid-year deal activity may provide useful market context.
Potentially. In the UK, a company purchase of own shares must comply with Companies Act requirements and applicable funding rules. The seller’s tax treatment may be income or capital depending on whether statutory conditions are satisfied.
Not necessarily. Parties can sometimes agree to appoint a single independent expert, although each shareholder may still want separate legal and tax advice. Accountants involved in acquisitions can also assist with financial analysis.
If a shareholder is planning an exit, Speak to the SCC team in Armagh, Dundalk or London to discuss valuation, tax and transaction planning.
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