Glossary · Business management

Valuing a business: methods, multiples and realities

7 min read · Updated on 3 July 2026

Definition Business valuation involves estimating a company’s economic value — for a sale, fundraising, family transfer, a new partner or a divorce. For an SME, the dominant method is the adjusted EBIT (or EBITDA) multiple, framed by an asset-based analysis and adjusted for net debt. The real value remains what a buyer is willing to pay: methods serve to objectify the negotiation, not replace it.

The full entry

The essentials in brief

Primary SME method: Enterprise value = Multiple × Adjusted EBITDA, 3-year average — then subtract net debt.
Common SME multiples: 3-5× (retail, hospitality), 4-7× (B2B services), 5-8× (manufacturing), 8-15× (profitable SaaS).
Adjustments change everything: normalised director’s remuneration, rent, non-recurring expenses.
SME discounts: dependence on the director, customer concentration, size — up to −30/40% on the multiple.
Valuation requires 2-3 years of preparation: it’s a management project, not a last-minute calculation.

I The methods

The three method families (and when to use them)

1. Multiples (comparables) — the SME benchmark.

Enterprise Value (EV) = Sector multiple × Adjusted EBITDA (3-year average)
Equity Value = EV − Net financial debt

Adjusted EBITDA is key: we normalise the manager’s remuneration (a manager paying themselves €30k to avoid "dragging down" profits artificially inflates EBITDA — the buyer will factor in the market cost of a replacement manager), remove one-off expenses (lawsuits, relocations), add back discretionary spending, and adjust rent if the premises are owned by the manager (market-rate rent).

2. Net asset value method (adjusted): revalued equity (property at market price, depreciated stock, estimated goodwill). Relevant for asset-heavy businesses (property, wholesale with stock) and as a negotiation floor. Insufficient alone: it ignores future profitability.

3. Discounted Cash Flow (DCF): pure financial theory — project cash flows for 5–7 years and discount them. Standard for fundraising and major deals; in a typical SME sale, its assumptions (7-year growth, discount rate) offer too much flexibility to convince a sceptical buyer. Useful for cross-checking, rarely as a negotiation basis.

In practice, a solid file combines all three: multiples set the core range, net asset value the floor, DCF the arguable ceiling.

4-7 ×

Adjusted EBITDA: B2B services range (3–5 for retail, 8–15 for SaaS)

3 years

of averaged EBITDA — a single good year doesn’t define value

−30 %

possible discount for dependence on the manager or a client > 30 % of turnover

II Key factors

What drives the multiple up (or down)

With the same EBITDA, two SMEs can be worth double or half. The key factors:

What drives value up:

Recurring revenue: subscription contracts, maintenance, retainers — predictable turnover commands a higher multiple than a order book rebuilt annually (see ARR sheet).
Independence from the manager: a middle management team in place, documented processes, clients loyal to the business rather than the individual. The key question every buyer asks: "What happens when you leave?"
Client diversification: no single client > 15–20 % of turnover.
Flawless, tool-driven accounting: reliable monthly reporting, known margins per activity, maintained forecasts. Beyond signalling professionalism, this shortens (and secures) the acquisition audit.
Proven growth: three consecutive years of progress are better than a single peak.

What drives value down:

Dependence on the manager (technical, commercial or relational);
A dominant client, a critical supplier with no alternative;
Ongoing disputes, latent social liabilities (unpaid overtime, borderline fixed-term contracts), potential tax adjustments;
Opaque accounting where the buyer "discovers" issues — each discovery is paid for in discounts or expanded warranty liabilities.

Realistic timeline: a sale is prepared 2–3 years in advance — time to normalise remuneration, reduce dependence on the manager, increase recurring revenue and "clean up" the accounts. Starting when you want to sell means selling flaws at a premium.

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Golden rule

An SME’s value is built through day-to-day management: recurring revenue, known margins, reliable reporting, reduced dependencies. The same improvements that boost valuation also improve the manager’s life — all the more reason not to wait for the sale.

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III Frequently asked questions

Answers to the questions we get asked most.

Enterprise value vs. sale price: why are they different?

Enterprise value (EV) remunerates the economic tool; share price = EV − net financial debt (+ excess cash). Negotiation then adds its layers: payment terms (cash vs vendor financing vs earn-out indexed to future performance), asset-liability warranty, seller support. A high 'face value' paid two-thirds in uncertain earn-out may be worth less than a modest cash offer. Compare offers using discounted and risk-weighted value, not the headline figure.

How much does a professional valuation cost and who performs it?

An independent valuation by a specialist chartered accountant or valuation firm typically costs €3,000–10,000 for an SME (depending on size and complexity); small-cap investment banks include it in their sale mandate (success fee, 3–6% of the price). For a free preliminary estimate: sector benchmarks (EBITDA multiples, % of turnover for business assets) published by federations and notarial studies provide an initial range — but these must be refined by adjustments, which alone can account for ±30%.

How do you value a loss-making or turnaround business?

EBITDA multiples no longer work (multiple × negative…). Instead, use: net asset value (revalued assets minus liabilities — often the floor), break-up value (cost of rebuilding: customer base, team, licences, equipment), or a discounted sector revenue multiple if a buyer can restore profitability (their business plan, not yours, will set the price). In advanced turnaround, the value may be negotiated at a symbolic €1 in exchange for taking on liabilities — the real negotiation then focuses on warranties and debt treatment, not the price.

The three method families (and when to use them)

What drives the multiple up (or down)

What if a tool handled this for you?

Answers to the questions we get asked most.

Make Orizen better, one click is enough.