Introduction: a loaded question

“What is my company worth?” It is perhaps the most frequently asked question by entrepreneurs who are thinking about a sale. The answer is seldom simple. Because a company's value isn't just the sum of numbers. It is also a mirror of expectations, market conditions and, above all, emotions.

For the entrepreneur, the value often feels higher. That's logical: you've been working, building, investing and taking risks for years. You know every detail of your business, every success, and every moment you persevered. It's your life's work, and so the price feels high. For the buyer, however, the emotion is irrelevant. He takes a sober look at the figures, the market, the team and the risks.

This difference in perspective often causes friction. In this blog, we explore why emotion and reality collide, how valuation works in practice and what steps you can take as an entrepreneur to stay in control.

Value: subjective or objective?

The first misconception that often arises is that there is a fixed amount for your company. In reality, the value is context-dependent. For one buyer, your company can be worth twice as much as it is worth to another. For example, a strategic buyer who wants to gain market share sees synergy benefits that an investor may not see.

There are three perspectives that usually come together in a valuation:

• The intrinsic value: what is the company's assets, equity and profit capacity?
• The relative value: how does your company compare to other similar companies that have recently been sold?
• The strategic value: what is your company worth to a buyer who gains specific benefits from it, such as market access or technology?

In other words, there is no single truth. There is a bandwidth within which negotiations ultimately take place.

How valuation works in practice

Although there several methods exist, there are three that often come back to SME acquisitions in practice:

1. EBITDA multiples

This is by far the most used method. The profit before interest, tax and depreciation (EBITDA) is multiplied by a factor, the multiple. This multiple depends on the sector, the size of the company and the market situation. In many SME sectors, this factor is between 3 and 6.

For example, if your company has an EBITDA of €400,000 and the market uses a multiple of 4, the indicative value is around €1.6 million.

2. Discounted Cash Flow (DCF)

Here, the expected future cash flows are calculated to their current value. This model is theoretically powerful but sensitive to assumptions. Minor adjustments in growth expectations or discount rates can lead to major differences in outcome.

The detailed video below explains the method in full:

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3. Market comparison

This method looks at recent transactions by similar companies. For some industries, there is public data or deal databases. This provides a realistic picture of what buyers are actually willing to pay.

In practice, these methods are often combined to achieve a balanced valuation.

Common mistakes made by entrepreneurs

When preparing for a sale, we often see the same pitfalls:

1. Emotional overvaluation
   Entrepreneurs overestimate the value because they have invested so much time and energy themselves. But investments in blood, sweat and tears are not an economic value for the buyer.
2. Not taking dependency into account
   If you are indispensable as an entrepreneur, that reduces the value. A buyer sees risks: what happens if you drop out after the sale?
3. Unclear numbers
   A faulty administration, separate Excel files or non-current financial statements make a buyer suspicious. Without reliable figures, the negotiating position is weak.
4. Wrong expectation management
   Some entrepreneurs hear from an acquaintance that their company was sold “for six times the profit” and indiscriminately assume that this also applies to them. However, each situation is unique.

How buyers look at your business

For a buyer, a company is an investment. The central question is: what is the ratio between risk and return?

• Yield: how stable and predictable are the profits?
• Risk: how dependent is the turnover of a few customers, how transferable are the processes and how strong is the organization?

A company with stable, recurring income, diversified customers and a solid team is more attractive than a company that mainly relies on the commitment of the founder and one major customer.

The role of market and timing

External factors also play a role. Interest rates, the economic cycle, trends in your industry, and even geopolitical developments can influence buyers' appetite.

In recent years, for example, we have seen that companies in renewable energy or technology often received higher multiples due to the high demand from investors. In sectors that were under pressure, such as the hospitality industry during the coronavirus pandemic, the multiples actually fell sharply.

So timing is crucial.

How do you stay in control as an entrepreneur?

Despite the uncertainties, you can do a lot yourself to keep a grip on the valuation. A few practical tips:

• Have an independent valuation made. This gives you an objective starting point.
• Know the multiples in your sector. Follow publications, acquisition platforms, and market data.
• Get your numbers in order. Provide current financial statements, clear reports and insight into cash flows.
• Work on getting ready for sale. Decrease your dependence on yourself and increase the predictability of income.
• Set realistic expectations. Be prepared for negotiations and bid ranges.

With this preparation, you will avoid being surprised and you will be stronger in conversations with potential buyers.

Conclusion: between feeling and number

A company's value is rarely a fixed amount. It's a mix of hard numbers, market factors, strategic benefits and — on the entrepreneur's side — emotion. By being aware of the differences in perspective, you can look at your own company realistically and avoid disappointment.

Time for action

Do you want a transparent and realistic picture of what your company is worth and how to maximize that value?

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