Sale, takeover, a partner joining or leaving, contributing shares to a holding company, family handover: many decisions require estimating a business’s value. There is no single value, but a reasoned range.
Asset-based approach
It starts from equity, adjusted to the real value of assets and liabilities. Suited to asset-heavy companies, such as holding or property companies.
Earnings approach
It applies a multiple to a profit indicator, adjusted for non-recurring items and a normative director’s remuneration.
Cash-flow approach
It discounts expected future cash flows. It requires a solid forecast.
Comparable approach
It relies on comparable transactions or companies, where relevant references exist.
What creates value
- Recurring and diversified revenue.
- Profitability and its consistency.
- Dependence on the owner.
- The quality of financial information.
- Market prospects.
A valuation is a starting point for negotiation; the price then results from agreement between the parties.
Preparing value before measuring it
- Make the accounts reliable for recent years: a buyer pays less for what they do not understand.
- Reduce dependence on the owner: customers, know-how and decisions must be transferable.
- Formalise key contracts: customers, suppliers, lease, intellectual property.
- Separate non-operating assets (property, surplus cash), which are valued separately.
Common mistakes
- Using a “market” multiple without taking into account the size, sector and specific risk of the business.
- Valuing on an exceptional year, up or down.
- Confusing value and price: the price also depends on the terms of the transaction (warranties, deferred payment, earn-out).
Frequently asked questions
How long does a valuation take?
Usually a few weeks, depending on the availability of information and the complexity of the business.
How is this different from a contribution audit?
A valuation estimates a value; the contribution auditor assesses a value proposed for a contribution. See contribution audit
How can I increase my business’s value before a sale?
By making financial information reliable, reducing dependence on the owner and strengthening recurring revenue, ideally several years ahead.
Who needs a valuation?
The seller, the buyer, partners when one joins or leaves, and the company for a contribution or restructuring.
Can a valuation be challenged?
Yes, by the parties or the tax authorities, hence the importance of a documented, consistent method.