Business valuation is the structured process used to determine the economic value of a company. It forms the basis for setting a price in a sale or a succession.
There is no single correct value. Depending on the method, the assumptions, and the perspective, you get different results. That is why, in practice, people speak of a value range rather than one figure.
The most common methods are the earnings value method, which focuses on future earnings, the net asset value method, which focuses on existing assets, and the multiples method, which compares against similar sales. Often several are combined.
It starts with preparing the numbers: the annual financial statements are adjusted for one-off effects, private costs, and a market-standard owner's salary. EBITDA often serves as the earnings figure here. Only on this adjusted basis do the methods deliver reliable results.
What matters is treating the valuation as guidance, not as a fixed price. It creates a shared, transparent basis. On it, buyer and seller can negotiate objectively, instead of arguing over gut feelings.
For business sellers
For you as a seller, a well-founded valuation is the important first step. It gives you a realistic sense of value and keeps you from handing over your life's work below its worth or scaring off interested parties with inflated expectations.
The calculated value stays a guide figure. The actual price only emerges in the negotiation with a specific buyer and also depends on supply, demand, and the situation at the table.
For corporate buyers
As a buyer, you should know: sellers like to look optimistically ahead in a valuation. Do your own calculation more cautiously and question the assumptions, especially around future earnings. You will check the figures later in due diligence anyway.
The key question is: do the realistically expected earnings cover the asking price within a reasonable timeframe? An independent second opinion, for example from a trustee or advisor, is usually well worth the money.
Example
A small IT service provider is being valued. The earnings value method gives around 560,000 euros, the multiples method around 620,000 euros. From this range of roughly 560,000 to 620,000 euros, buyer and seller ultimately agree on 600,000 euros.
FAQ
Which valuation methods are there?
The three most common are the earnings value method for future earnings, the net asset value method for existing assets, and the multiples method for market comparison. For small businesses they are often applied in a simplified and combined way.
Why do different methods arrive at different values?
Because they measure different things: earnings, net assets, or a market comparison. That is why you get a range, not one fixed figure.
Buying or founding: which is more valuable?
A valuation makes the difference tangible. When you buy, you pay for a business that already has earnings, customers, and structures. When you found one, you start without that value, but also without a purchase price. You do not start at zero, you take over something living.
Is the determined value the same as the sale price?
No. The value is a well-founded guide figure. The price emerges in the negotiation and can land above or below it, depending on demand and negotiating skill.
How do I prepare my company for a valuation?
Make sure the figures for recent years are clean and transparent, and keep private matters clearly separate from the business. Document what makes the business what it is: customer structure, recurring revenue, and the team. The clearer this picture, the more reliable the valuation.
How much does the value depend on the owner?
With small businesses, often a great deal. When customer relationships and day-to-day operations hinge on one person, this owner dependency lowers the value. A business that runs even without its current owner is worth considerably more.
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