The valuation of a company is a key step in any sale, acquisition, merger, or fundraising process. Yet many owners overestimate or underestimate the real value of their business, due to a lack of rigorous method or market knowledge. So, how can a company’s value be estimated ? What are the most common valuation methods ? And how can this valuation be optimized in the context of a sale or transfer ?
Here is a clear and structured overview to answer these essential questions.
The value of a company : between perception and reality
It is common to hear a business owner say : “My company is worth 3 times its revenue” or “It’s worth 5 times its net income.” While these formulas can serve as rough indicators, they do not account for many key elements : financial structure, debt, cash, industry sector, growth potential, etc.
It is therefore essential to distinguish between two notions :
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Theoretical value : based on the fundamentals of the business (assets, profitability, projections).
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Market price : which depends on supply and demand at a given moment, in a specific context.
This is why working with a business valuation expert provides an objective, credible, and defensible estimate.
The main methods of business valuation
There is no single universal method to value a company, but several approaches that can be adapted depending on the company’s profile, its sector, and the objective (sale, capital increase, LBO, etc.).
1. Asset-based methods
These rely on the value of the assets recorded on the balance sheet, adjusted if necessary. Mainly used for companies with significant real estate or capital, they include :
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Net asset value (adjusted net assets)
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Replacement value (cost of rebuilding the assets)
2. Income-based methods
These financial approaches focus on the company’s ability to generate profits or future cash flows :
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Capitalization of net income
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Discounted cash flows (DCF)
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Multiples method : for example, applying a sector-adjusted multiple of EBITDA or EBIT.
Example : a company valued at 4 to 5 times its EBITDA, depending on its potential, with net cash added and financial debt deducted.
3. Market-based methods
These compare the company to other similar businesses recently sold or publicly listed. Often used in a tax context, or to validate a valuation range.
Key criteria to consider
To choose the right valuation method, several elements must be analyzed :
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Company size (SME, small business, large group)
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Industry sector (manufacturing, tech, services, etc.)
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Geographic area and target market
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Profitability and growth prospects
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Shareholding structure and financial debt
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Purpose of the transaction (retirement, buyer, LBO, etc.)
For example, in volatile or innovative sectors, a cash flow approach (DCF) is often preferred. Conversely, for a more traditional company with significant assets, an asset-based valuation remains relevant.
How to optimize your company’s valuation before a sale ?
While a company’s value depends on many external factors, it is possible to optimize its perception with buyers or investors. Here are a few concrete levers :
1. Clarify the shareholding structure
The fewer shareholders there are, the faster decisions can be made. Concentrating ownership in a small, stable group sends a reassuring signal and strengthens negotiation power.
2. Create a holding company
Useful for owners who want to reinvest in another activity after the sale. It allows the deferral of capital gains tax and helps structure future entrepreneurial projects (LBO, external growth, etc.).
3. Formalize a shareholders’ agreement
It helps unify the voice of the partners in front of buyers and present a united front during negotiations.
4. Separate non-strategic assets
Removing peripheral activities or real estate from the company refocuses the valuation on operations. For instance, transferring a property into an independent real estate company (SCI) can optimize the transaction tax-wise.
THE EVALIANCE CAPITAL APPROACH
HOW TO ESTIMATE THE REAL VALUE OF A COMPANY ?
The business valuation process is a technical exercise that requires :
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A deep understanding of the business,
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A methodology adapted to the objectives,
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An analysis of past and future performance.
It is strongly recommended to cross-check several methods, as done by tax authorities or specialized valuation firms. The fair price always lies between the seller’s expectations and the buyer’s ability to finance and profit from the deal.
Need help to value your company ? Call on an expert such as Evaliance Capital to obtain a reliable, optimized, and defensible valuation in front of your counterparts.
