What is my business worth?
What is your company really worth? Learn about the most common valuation methods, understand which factors influence its value, and why the purchase price rarely matches the company's value.
1 Why a Realistic Assessment of a Company's Value Is Crucial
Valuation is one of the most critical aspects of the entire sales process. If it is misjudged, it can have far-reaching consequences—for better or for worse.
Excessively high price expectations
Negotiations fail early on: If your asking price is significantly above market value, potential buyers will quickly back out
Valuable time is wasted: You engage in discussions that lead nowhere, and the sales process drags on unnecessarily
Frustration on both sides: Repeated failed negotiations can weaken your motivation and bargaining position
Price expectations that are too low
Wasting value: You accept less than what your business is actually worth on the market
No negotiating leverage: If you start too low, you’ll have little room to move upward
The value of a business isn't what you hope it is, but what a buyer is willing to pay. A well-founded valuation helps you set realistic expectations and negotiate with confidence.
2 The Most Common Valuation Methods
There are various methods for calculating a company's value. For small businesses, three are particularly relevant:
EBIT(DA) Multiple Method
By far the most common method for small businesses. In this method, operating profit (EBIT or EBITDA) is multiplied by a factor typical for the industry.
EBIT = Earnings Before Interest and Taxes
EBITDA = EBIT + Depreciation and Amortization (Earnings Before Interest, Taxes, Depreciation, and Amortization)
Multiple = Industry-standard factor, depending on industry, size, and risk
Adjusted EBITDA: The Most Important Metric
For owner-managed companies, EBITDA must be adjusted so that buyers can assess the company’s actual earning power. Typical adjustments:
Owner’s salary: If you pay yourself a salary that is above or below average, it is adjusted to a market-standard CEO salary
Personal Expenses: Costs charged to the company but of a personal nature (e.g., a company car used exclusively for personal purposes)
One-time items: Extraordinary income or expenses (e.g., legal dispute, one-time insurance payout)
Rent to affiliated companies: If you own the business premises and charge rent that is above or below market rate
Prepare the EBITDA adjustments carefully and transparently. Buyers will scrutinize every adjustment; the more transparent your numbers are, the stronger your negotiating position will be.
Guideline Multiples for Small Businesses
The following figures are rough ranges provided for guidance. As a rule, the industry and the specific situation of the company (see Section 3) have a significant influence on the actual multiple.
Company Type | EBITDA Multiple |
|---|---|
Small company, highly owner-dependent | 2–3x |
Stable company, moderate dependence | 3–5x |
Growing company, low dependence | 4–6x |
Strong brand, recurring revenue | 5–8x |
Sample calculation with adjustments:
Item | Amount |
|---|---|
Annual Revenue | 800,000 EUR |
EBITDA (Operating Income + Depreciation) | 150,000 EUR |
Adjustment for owner’s compensation (+30,000 EUR) | 180,000 EUR |
Adjustment for one-time items (+20,000 EUR) | 200,000 EUR |
Multiple (industry average) | 4.0x |
Enterprise value | 800,000 EUR |
Asset-based valuation method
In this method, the value of all assets (machinery, real estate, inventory, accounts receivable) is totaled and liabilities are subtracted. This method is primarily used for distress deals (companies in financial distress) or for very small businesses where earning power alone does not provide a meaningful valuation.
Advantage: Tangible and easy to understand
Disadvantage: Does not take into account future earnings or the customer base
Do NOT add the net asset value to the income-based value. The assets necessary for operations (machinery, inventory, vehicle fleet) are already included in the EBITDA-based valuation: after all, they are what generate the income in the first place. Only non-operating assets (e.g., leased real estate, unused land, excess cash) may be added separately.
3 What Affects the Value of Your Business
The raw calculation is just the starting point. Various factors can cause your company’s value to rise or fall:
Value-Adding Factors
Stable, diversified customer base: Having a wide variety of customers reduces the risk for the buyer
Low dependence on the owner: The business runs smoothly even without you. Processes, employees, and customer relationships aren’t tied to you
Growth trend: Rising revenue and profits in recent years demonstrate potential
Documented processes: Clear procedures and documented workflows facilitate the takeover
Long-term contracts: Lease agreements, supplier contracts, customer contracts—everything that provides planning certainty
Recurring revenue: Subscription models, maintenance contracts, or long-term framework agreements increase predictability
Factors that reduce value
High customer concentration: If a single customer accounts for 30% or more of revenue, this poses a significant risk
Heavy reliance on the owner: When customer relationships, expertise, or decision-making rest solely with you
Outdated equipment: Machinery, software, or facilities that need to be replaced on short notice
Declining revenue: A negative trend signals risk to buyers
Unresolved legal issues: Pending legal disputes, unclear contracts, or missing permits
A high degree of owner dependence can reduce a company’s value by 20–40%. Start delegating tasks and documenting processes early on. (→ Module 1: Exit Readiness)
4 From Enterprise Value to Purchase Price
The multiples method yields a company value calculated as if the company were debt-free and had no cash on hand—in technical terms, “cash and debt free.” In practice, this is never the case. Therefore, reconciliations are necessary to arrive at the actual purchase price from the calculated value.
The Price Bridge: From Enterprise Value to Purchase Price
The purchase price is derived from the enterprise value plus or minus various adjustments:
Minus: Financial liabilities (debt): bank loans, shareholder loans, lease obligations
Plus: Excess cash: cash on hand and bank balances above the level necessary for operations
Plus/minus: Working capital: Adjustment if current assets deviate from normal levels
Minus: Investment backlog: Necessary investments that you have not made
Working capital (net working capital) is the money tied up in day-to-day operations:
Working Capital = Current Assets − Current Liabilities
Current Assets: Outstanding customer invoices (accounts receivable), inventory, cash on hand
Current Liabilities: Outstanding supplier invoices, current provisions
A normal value is agreed upon for the price bridge: typically the average of the last 12 months. On the transfer date, the actual working capital is measured and compared to the normal value:
Actual WC higher than the normal value → Buyer receives more tied-up capital → Purchase price increases
Actual WC lower than the normal value → e.g., because you reduced inventory before closing → purchase price decreases
Example: Price Bridge
Item | Amount |
|---|---|
Enterprise Value (4× EBITDA) | €800,000 |
− Financial liabilities | −100,000 € |
+ Excess cash | +50,000 € |
± Working capital adjustment | −20,000 € |
− Investment backlog | −30,000 € |
Purchase price | 700,000 € |
Prepare for the price gap: Reduce financial liabilities before the sale process begins, address fluctuations in working capital, and document investments made. The fewer deductions buyers can make, the closer the purchase price will remain to the company’s value.
5 Calculate three scenarios
One of the most common reasons transactions fall through: The seller has a single figure in mind that absolutely must be met and is unwilling to deviate from it. Those who think in terms of scenarios instead significantly increase the likelihood of a successful sale. A price range gives you room to negotiate without making you feel like you’re selling below value.
Scenario | Multiple | Enterprise Value |
|---|---|---|
Conservative | 3× | €600,000 |
Realistic | 4× | €800,000 |
Optimistic | 5× | €1,000,000 |
Basis: Adjusted EBITDA of €200,000
Start the negotiation with the optimistic scenario and make your case using the value-adding factors (Section 3). Buyers will try to push you toward the conservative scenario. With well-founded figures and a clear adjustment, you’ll have the stronger arguments.
The purchase price agreed upon in the LOI (Letter of Intent) isn’t set in stone. After due diligence, the buyer may request adjustments—for example, because liabilities were discovered or forecasts were too optimistic. The more accurate your numbers are from the start, the less likely you are to face renegotiation.
Talk to a sales consultant or a DUB representative early on about the valuation of your business. An experienced outside perspective will help you determine a realistic value and enter negotiations with solid figures.
- Adjusted EBITDA: The most important metric: Exclude owner compensation, personal expenses, and one-time items
- Multiples: Between 2× and 8×, depending on the industry: the lower the owner dependency, the higher the multiple
- Price Range: From enterprise value to purchase price: Take into account debt, cash, working capital, and investment backlog
- Three Scenarios: Conservative, Realistic, Optimistic: Provides a robust purchase price range
- Do not add net asset value: Assets necessary for operations are already included in the multiple; only add non-operating assets separately
Answer 5 questions about business valuation. All answers must be correct to complete the module.
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