How much is a company really worth? This is a question that all business owners ask themselves at some point. Especially when the valuations they receive vary surprisingly. And this is no coincidence, as behind each figure there are different assumptions, methodologies and perspectives.
Business valuation is not just for when someone wants to sell. You also need it when a partner joins, you seek financing, you distribute shares among your children, or you define incentives for your management team. What is at stake is truly understanding how much your business is worth, why it is worth it… and what you could do to make it worth more.
Price is not value, and confusing the two can be costly
This confusion is constantly seen. And it is dangerous.
Value and price are different things. Value is a reasoned estimate of the business based on data, projections, and analysis. Price… well, that’s what someone is willing to pay and what the seller accepts. It can be well above or well below value, depending on urgency, expectations, synergies, or simply how much the buyer likes the business.
An illustrative case: a logistics company had an estimated value of 8 million, but was sold for 12. Why? Because the buyer specifically needed that geographical location and those contracts. The synergies justified the difference.
Therefore, before discussing price, you need to know what value you are playing for.
Methods
Discounted Cash Flow (DCF)
This is the preferred method when there is a certain degree of stability and you can project the future with some confidence. Basically, you project how much cash your business will generate in the coming years and bring it to the present using a discount rate (the famous WACC, which is simply the cost of your capital).
The advantage? It reflects the real potential of the business. The problem? It depends on many assumptions. If there are errors in the growth projections or the discount rate, the whole house of cards comes crashing down.
An example: a technology start-up projected 40% annual growth over five years. It sounded great until they analysed where that growth was going to come from. In the end, the most realistic projections were around 15% per annum. The difference in valuation was huge.
Comparable multiples
Here, you look at how companies similar to yours have been valued, using ratios such as EV/EBITDA, PER, or multiples on sales. This is useful for quick reference and to explain why your company cannot be worth 50 times its sales when those in the sector are trading at 2x.
But there are always truly appropriate comparables. We have seen disastrous valuations due to copying multiples from companies that only resembled yours in the name of the sector, but had completely different business models.
Valuation by assets
This is the most straightforward: add up the assets, subtract the liabilities, and you have your value. It works well for companies with a lot of tangible assets or that are in the process of liquidation.
The problem is that it falls short when the company generates value mainly through intangibles, technology, brand, or scalability. A consulting firm may have assets worth €50,000 but be worth €2 million because of its client portfolio and knowledge.
And if none of this fits
The reality is that you often have to combine methods. There are specific models for start-ups, and for companies in very specific sectors too. But the important thing is not to master every formula in the world. It’s knowing when to use each one and, above all, how to explain the results without getting lost in technicalities that no one understands.
What makes a valuation truly useful
There are 80-page valuation reports full of beautiful graphs that are useless. And there are 15-page reports that help close million-pound deals. The difference is not in the amount of analysis, but in whether the valuation is useful for decision-making.
First, you need a financial narrative that makes sense. It’s about clearly explaining what makes the business work: how the money comes in, how much actually stays in the coffers, and whether the whole process is repeatable.
A client recently said that his company «sold technology.» When we looked deeper, it turned out that his real business was implementation and subsequent maintenance. The technology was almost a commodity. Understanding this completely changed the approach to valuation.
Second, scalability has to be realistic. Can the company grow? How much and at what cost? Is there room to raise prices without losing customers? Can new sales channels be opened?
This is where the fine work comes in. Explaining what levers the business really has to multiply value without multiplying problems proportionally. Because growing for the sake of growing is pointless if every additional euro of revenue costs 1.20 euros to achieve.
The infomemo must be honest. It is not a catalogue of the company’s virtues but a map of the business that must make clear what is done well, what risks exist, where the critical dependencies are (that customer who accounts for 40% of revenue, or the manager without whom nothing works), and how all this affects value.
And something important: you have to think like an investor. How will the person putting in the money see the company? What can they do with it that is not being done now? This perspective is key to building value, not just calculating it.
In the end, it’s all about clarity
Valuing companies is not about mechanically applying formulas. It’s about building a clear, realistic and useful vision of what the business is worth today… and what it could be worth in the right hands.
Is there a sale, investment search or restructuring process underway? Do you need to know what the business is really worth, not in theory but in the real world? Let’s talk.