Business Valuation: What Is Your Company Really Worth?

Business Valuation: What Is Your Company Really Worth?

For most business owners, valuation becomes genuinely important only a handful of times. The question is almost always the same: what is my company worth?

For a private business, there is rarely one correct figure. Achievable value depends on earnings, growth, risk, the buyer universe, market conditions and the transaction process.

The starting point is sustainable earnings

For many profitable companies, EBITDA is an important starting point. Reported EBITDA, however, does not always represent the level of earnings that a buyer will regard as sustainable.

Owner managed businesses may contain private costs, exceptional expenses, unusual gains or owner compensation that is not at a market level. For that reason, transactions often involve an assessment of normalised or adjusted EBITDA.

Restraint matters. A buyer will usually accept only adjustments that are clearly supported and genuinely non recurring.

From EBITDA to enterprise value

A common valuation approach is to apply a multiple derived from relevant market evidence to sustainable EBITDA.

In simple terms, enterprise value is adjusted EBITDA multiplied by the relevant valuation multiple.

For illustration only, €2 million of adjusted EBITDA and a relevant multiple of 5.0x to 6.0x would imply an indicative enterprise value of €10 million to €12 million. These figures are not a general benchmark.

What determines the multiple?

A multiple is, in simple terms, an assessment of the quality, growth and risk of future earnings. Two companies in the same sector can therefore command very different valuations.

Important factors often include growth, revenue quality, customer concentration, management depth, cash conversion, market position and scale.

A company with recurring revenue, low customer dependence, strong management and credible growth will usually be assessed differently from a company with the same EBITDA but materially higher risk.

Enterprise value is not the same as equity value

Enterprise value reflects the value of the operating business. The amount economically attributable to shareholders is determined only after financial debt, cash, debt like items and other agreed adjustments are taken into account.

For an owner, this bridge can matter at least as much as the headline multiple.

Why different buyers may arrive at different values

A private equity investor will typically focus on sustainable earnings, growth, financing capacity, cash flow and potential value at a later exit.

A strategic buyer may also value synergies such as access to new markets, complementary products, technology, customer relationships or cost advantages. The same business can therefore be worth different amounts to different buyers.

Why a range is more useful than a precise figure

A valuation of, say, €11.4 million can imply a precision that rarely exists in private markets. A defensible range is often more honest and more useful.

What matters is the assumptions behind the range, which buyers may support the higher end and which risks may affect price or transaction structure.

Conclusion

Business valuation is more than EBITDA multiplied by a multiple. It reflects financial performance, business quality, buyer logic, market conditions and transaction process.

The important question is not which theoretical figure appears most precise. It is what the business can credibly command in the market and which buyers are most likely to recognise that value.