DCF calculator for UK SMEs
Project 5 years of EBITDA, convert to free cash flow at your chosen conversion rate, discount to present value at your WACC proxy, add a terminal value at year 5 using a sector exit multiple. Every input is exposed so you see how sensitive the number is to your assumptions.
By Chris at Sell LtdLast updated - DCF for UK SMEs — no MBA required to run it.
- Best used as a cross-check on EBITDA-multiple valuations, not as the headline number.
- Sensitive to growth and discount rate — the calculator shows year-by-year PV so you see why.
- Reasonable defaults: 12% discount rate, 70% FCF conversion, 5× exit multiple.
| Year | EBITDA | FCF | PV |
|---|---|---|---|
| Y1 | £308k | £216k | £192k |
| Y2 | £339k | £237k | £189k |
| Y3 | £373k | £261k | £186k |
| Y4 | £410k | £287k | £182k |
| Y5 | £451k | £316k | £179k |
| Terminal value (PV) | £1.28m | ||
| Enterprise value | £2.21m | ||
How to set defensible DCF inputs
Base EBITDA
Use trailing-12-months adjusted EBITDA — the same number you'd hand to a buyer's diligence team. If trading is declining, use a run-rate-adjusted figure and lower year-1 growth accordingly.
Growth rate
The single most important — and most abused — input. If you've compounded EBITDA at 8% for three years, projecting 20% forward is not credible without a specific driver (new product, new market, new contract). Buyers will strip your optimism ruthlessly. Use your historical CAGR unless you can point to a locked-in change.
FCF conversion
70% is a fair UK SME average — 30% leaks to working-capital, tax and capex. Asset- light service businesses can hit 85–90%. Capital-heavy manufacturers may only convert 50–60%. Adjust deliberately.
Discount rate
UK owner-managed businesses typically discount at 10–14%. Below 10% implies your business is as low-risk as a listed mid-cap — it isn't. Above 15% implies distress or extreme concentration risk — say so out loud if that's your position.
Exit multiple
Use the P50 of your sector's size band 5 years out — not today's P75. Assuming you'll exit at the top of the range in a hot market is speculation, not valuation. See EBITDA multiples by sector.
DCF versus EBITDA-multiple — when to trust which
If your DCF is more than 30% above your EBITDA-multiple valuation, your growth assumption is too aggressive. If it's more than 20% below, your discount rate is too high or your FCF conversion too low. Reasonable UK SMEs land within 15% of each other on both methods — that's the sanity check.
What to present to buyers
Never lead with the DCF number. Lead with adjusted EBITDA × sector multiple, back it up with SDE for owner-operator businesses, and present the DCF as a supporting cross-check with all inputs visible. Confident, transparent, defensible — the three adjectives buyers use for a well-priced business.
Frequently asked questions
Is DCF the right way to value a UK small business?
For most UK SMEs (under £3m EBITDA), DCF is a cross-check, not the primary method. Buyers price on adjusted EBITDA × sector multiple because it's what the market trades on. DCF becomes primary above £3m EBITDA, in high-growth SaaS, or when precedent transactions don't exist for the sector.
What discount rate should I use for a UK SME DCF?
10–14% is a reasonable band for UK owner-managed businesses. Lower (8–10%) for stable, contracted, high-margin businesses. Higher (14–18%) for high-owner-dependency service businesses. The calculator defaults to 12% as a middle-of-the-road proxy for UK SME weighted-average cost of capital.
What terminal value multiple should I use?
The mid-point EBITDA multiple for your sector and size band 5 years from now — see our EBITDA multiple lookup. If you're in professional services and expect to be mid-market by year 5, use 5×. If you're SaaS with continued growth, 8× is defensible. Never assume a higher multiple than today's market P75.
Why is DCF so sensitive to assumptions?
Because you're compounding a growth assumption over 5 years and applying a terminal value that dominates the answer. Move growth from 10% to 15% and the enterprise value can jump 30%. That's why DCF is a cross-check — never present a DCF number to buyers without also showing the EBITDA-multiple range.
Do buyers actually run a DCF?
PE buyers and larger trade acquirers do — always, as part of underwriting. Smaller trade buyers and search funds often don't build a full DCF but they run mental-math cross-checks. Presenting a DCF in your Information Memorandum signals sophistication and helps defend your price.
Get a fully-drafted, buyer-ready valuation with Chris
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