How to Calculate Company Value: Methods, Formulas, and Rules of Thumb

Before you sell your business, you need to know what it's worth. This is not just a financial question – it's a psychological and strategic one. Whoever sells their business too cheaply loses years of hard work. Whoever sets expectations too high finds no buyer. The right valuation is the bridge between realistic expectations and fair market prices.

There is no single "right" valuation method. Depending on what kind of business you have, what industry standards apply, and who the potential buyer is, different approaches make sense. A good entrepreneur understands all methods and knows which is most appropriate in their case.

The EBITDA multiple is the most popular method in the SME sector. EBITDA stands for "Earnings Before Interest, Taxes, Depreciation, and Amortization" – in short: profit before interest, taxes, and depreciation. It's a metric that shows operating results without being skewed by financing structure or taxes.

The formula is simple: Company Value = EBITDA × Multiplier.

The multiplier varies by industry and size. Here's an overview for typical DACH industries:

• Trades (carpentry, electrical, roofing): 4-7x EBITDA. A good trade business with €100,000 EBITDA is valued at €400,000-700,000.

• IT, tech, and services: 6-10x EBITDA. These industries are more scalable and less dependent on individuals, so higher multiples.

• Retail and gastronomy: 3-5x EBITDA. Often lower multiples due to higher volatility and trend dependence.

• Manufacturing and machinery: 5-8x EBITDA. Stable, recurring business models with good predictability.

But be careful: the multiplier is not a law of nature. It depends on the quality of the business. A business with stable customers, good documentation, and strong management gets a higher multiple than one heavily dependent on the founder or showing volatile results.

The earnings value method is the classical valuation approach in the German-speaking world. It's based on the idea that a company's value equals its future earnings.

Simplified formula: Company Value = (Sustainable Earnings / Capitalization Rate) − Net Debt.

What is "sustainable earnings"? It's the profit the business can generate long-term – not last year's profit, but a normalized, average profit over 3-5 years.

The Capitalization Rate is a discount rate that accounts for risk. A safe business with stable earnings gets a lower rate (e.g., 8-10%), a risky business with volatile earnings gets a higher rate (e.g., 15-20%).

Example: A business generates sustainable earnings of €200,000. The capitalization rate is 10% (a stable business with moderate risk). The valuation would be: €200,000 / 0.10 = €2,000,000.

The earnings value method is academically cleaner than EBITDA multiples because it's theoretically sound. But it requires more work: you must normalize sustainable earnings and set an appropriate discount rate. Who is this best for? Established businesses with stable, predictable earnings – ideal for many trades, service providers, and small manufacturers.

The substance value method values a company based on its tangible and intangible assets. The formula is: Company Value = Market Value of All Assets − Liabilities.

When is this useful? When the business has many assets: real estate, machinery, inventory, vehicle fleets. Example: A manufacturer with high-value machinery, a factory building, and large inventory can be valued this way because tangible value is relevant.

Warning: the substance value method completely ignores earning power. A business with excellent machinery but poor management and declining profits will be valued too high if you only count the machines. Therefore, this method should be combined with an earnings-value approach.

Mistake 1: Not adjusting personal expenses. Many entrepreneurs run private costs through the company: company car, insurance, travel, representation costs. These appear in operating results, but a buyer will adjust and reduce them. Actual earnings are higher than reported. With adjusted numbers, valuation often rises 10-15%.

Mistake 2: Not normalizing EBITDA. If recent years were exceptional (large one-time projects, unexpected costs), you should neutralize this in EBITDA. Buyers are interested in "normal" business, not outliers.

Mistake 3: Setting price too low to sell faster. Some entrepreneurs think: "If I price well, I'll find a buyer faster." This is a classic psychological mistake. Too low a price suggests something is wrong. With realistic prices – based on solid valuation – it sells faster AND better.

Mistake 4: Ignoring owner dependency. If nothing works without you, the business gets a "Key-Person Discount" of 15-25%. Have you accounted for this? Then you should work to reduce this dependency before selling.

Mistake 5: Not thinking through exit scenarios. A business with multiple exit options (sale to competitor, conversion to holding company, MBO) is worth more than one with only one option. Consider these options in your valuation.

Imagine: A carpentry shop with €1,200,000 revenue. After adjustments, it earns €150,000 EBITDA annually. How would you value this?

With EBITDA multiple: €150,000 × 5 (low end of trades range) = €750,000 to €150,000 × 6.5 = €975,000.

With earnings value method: €150,000 / 0.12 (12% capitalization rate, some risk in trades) = €1,250,000.

The results differ! That's normal. The true value probably lies between €800,000 and €1,100,000.

BUT: if the carpentry shop has a VOS Assessment showing that processes are documented, customer base is diversified, owner dependency is low, and finances are clean – buyers can enter with more confidence. That means: the multiplier can increase from 5.5x to 6.5x. That's +€180,000 in value, just from better preparation and transparency.

Traditionally, a business is valued by a broker or consultant based on experience and intuition. This leads to uncertainty: "Is my price realistic? Too high? Too low?" With the VALENTYR VOS Assessment, you get an objective, data-driven valuation. The system considers not just standard multiples (EBITDA, earnings value), but also qualitative factors: customer diversification, documentation, automation, owner dependency.

The result: a realistic "valuation range" based on real data. You don't just know what your business is worth – you know why. And you know which improvements could increase value further (e.g., "Better documentation earns you +€100,000 more").

For businesses over €750,000 revenue: the VOS Assessment (€3,500 one-time) is an investment that pays back quickly. You don't negotiate in the dark – you negotiate with data.

No matter which method you choose: valuation is the foundation for all future negotiations. With a realistic, well-documented valuation, you negotiate from a position of strength. Without valuation, you'll be pushed into compromises. With VALENTYR, you have a clear anchor – based on data, not hope.