The company value is the value of a business expressed in money. It emerges from the company valuation and serves as the starting point for setting the price in a sale or succession.
It is distinguished from two related terms: the Enterprise Value as the value of the entire business, and the Equity Value as the value of the equity, that is, after deducting debts. For small businesses, people usually look at the value of the equity in a simplified way.
The value depends heavily on earning power, stability and dependence on the owner. A business that keeps running without its previous owner is generally worth more.
In practice, the company value is rarely derived from a single method. Experts weigh several approaches against each other, such as the capitalised earnings method and the net asset value, and use them to form a range. Negotiations then take place within this range.
Especially for small, owner-managed businesses, a soft factor plays a major role: how strongly does success depend on the previous person? The more transferable customer relationships and know-how are, the more stable the value for a successor. This transferable part often shows up as goodwill.
For business sellers
For you as a seller, the company value is often the central question: what is my life's work worth? An honest answer protects you from disappointment and from unrealistic expectations.
The calculated company value is a guide value, not a price tag. The final price emerges in the conversation with a specific buyer and can differ from it. It also differs clearly from the pure asset value, more on that under market value.
For corporate buyers
As a buyer, you ask yourself the key question: do the expected future earnings cover the price being asked? A business is only worth as much as it realistically brings in for you.
Pay particular attention to owner dependence. If revenue and customer relationships depend heavily on the previous person, the value drops for you, because part of it could leave with the seller.
Example
A skilled-trades business is estimated across several methods at a range of around 780,000 to 850,000 euros. Buyer and seller agree on 800,000 euros, of which 680,000 euros at the handover and 120,000 euros as an earn-out over the following two years.
FAQ
What is the difference between company value and purchase price?
The company value is a calculated guide value. The purchase price is what buyer and seller actually agree on in the end. The two can diverge.
What influences the company value the most?
Above all the sustainable earning power and stability. Dependence on the owner, the customer structure and the future prospects of the industry also carry real weight.
Why does an existing business have a value, but a start-up does not?
Because an existing business already has earnings, customers and established processes. That is exactly what the company value expresses. With a start-up you first have to build all of that up, but you pay no purchase price. Taking over means you do not start from zero.
Can I calculate the company value myself?
A rough orientation, yes, for example via the adjusted profit and the multiplier method. For a reliable valuation, however, professional support is worthwhile, precisely because a lot depends on the correct adjustment.
What lowers the company value?
Above all a strong dependence on the owner, few large customers instead of a broad base, declining earnings or a difficult market environment. Unresolved legal or tax issues also depress the value.
How does the company value differ from the net asset value?
The net asset value adds up what assets are available. The company value also factors in future earning power and, for healthy businesses, is usually higher.
Does the company value change over time?
Yes. It depends on the earnings situation, the order situation and the market environment, and fluctuates accordingly. That is why a valuation is always a snapshot, which should be updated for a later handover.
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