What is my company worth? Evaluation methods simply explained
What is your company worth? We'll show you the most common valuation methods — with practical examples and tips for succession & sales.
The company valuation is often the first — and often the most emotional — step in the succession or sales process. But how do you determine the actual value of a company?
In this article, we explain the central evaluation methods in SMEs — comprehensible, practical and including pitfalls.
1st multiplier method (EBIT/revenue multiplier)
This market-oriented method is based on a comparison with similar transactions (e.g. revenue x 1.2 or EBIT x 6—8).
Suitable for: Small and medium-sized companies with stable earnings
advantage: Fast, market-oriented
Disadvantage: Industry data often cannot be transferred 1:1
2. Discounted Cash Flow (DCF)
The DCF method is based on discounting future free cash flows. It is particularly common among larger companies.
advantage: Future-oriented, well-founded in business
Disadvantage: High data requirements, depending on planning quality
3. Substantial value method
Here, the value of the individual asset positions (e.g. machinery, real estate) is determined. More defensive.
Suitable for: industrial companies, upon liquidation or as a minimum value
Disadvantage: Intangible values are not taken into account
4. Income value method (Germany-specific)
The process is based on sustainable earning power — often used in a tax context.
Special feature: Relevant in combination with tax advisor assessments and IDWS1 reports
5. What also influences the value of the company?
Dependence on owner
Customer structure & repeat business
Market position & competition
Technological scalability
Team quality & management structure
Practical example:
An IT service provider with €2 million in revenue and €400,000 in EBIT generally achieves an enterprise value of between 2.4 and 3.2 million euros, depending on the market environment, customer loyalty and growth potential.
Conclusion: Company valuation is not a calculator result
The number itself is just the tip of the iceberg — plausibility, understanding of influencing factors and communication with potential buyers or investors are important.
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