Valuing a company: methods and mistakes to avoid

Updated March 29, 2026 - The valuation of a company is the key step that determines the transfer price in any sale, transmission, or capital entry. It draws on several complementary methods: discounted cash flow (DCF), EBITDA multiples, adjusted net asset value, and comparable transaction analysis. In 2026, higher interest rates and a more selective pool of buyers make this exercise more demanding than ever.

Business valuation consists of estimating a company's economic value at a given point in time, by cross-referencing accounting, financial, and strategic data. Contrary to a common misconception, there is no single formula. Each method illuminates a différent dimension: the capacity to generate cash, the net asset value, or the market price for comparable businesses.

According to Bpifrance Creation, a serious valuation must be "understandable by the buyer, financeable by banks, and defensible before advisers." That balance is what separates a theoretical price from a real transaction price.

Discounted Cash Flow (DCF)#

This approach projects available cash flows over 3 to 5 years, then discounts them at a rate that reflects the risk of the business. It is particularly suited to companies with stable and predictable profitability.

The sensitive point is the discount rate. In 2026, with European base rates around 2.5%, the weighted average cost of capital (WACC) for an SME typically ranges between 8% and 12%, depending on the sector and size. A one-point change in the rate makes a material difference: for a company generating €200,000 in annual cash flow, moving from a 9% to an 11% discount rate reduces the value by nearly 15%.

EBITDA or Earnings Multiples#

More intuitive to grasp, this method applies a multiple to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Multiples vary widely by sector:

• Services and consulting: 4 to 6x EBITDA
• Retail: 2 to 4x EBITDA
• Manufacturing and production: 5 to 8x EBITDA
• SaaS and digital: 6 to 10x EBITDA

These ranges are indicative. The actual multiple depends on revenue growth, revenue recurrence, order book quality, and compétitive positioning. For further context, see Business Transfer and Valuation.

Adjusted Net Asset Value#

This method starts from the net book value and adjusts it to reflect the real market value of assets and liabilities. Real estate, business goodwill, and patents are revalued, and latent provisions are incorporated.

This approach is particularly relevant for asset-heavy businesses — real estate, industrial. However, it tends to understate the value of service companies, where the real wealth lies in human capital and client relationships rather than tangible assets.

Comparable Transactions Method#

This involves identifying recent transactions in the same sector and extracting référence multiples. Databases such as the Banque de France (FIBEN) and business transfer advisory reports provide this data. The difficulty lies in genuine comparability: no two companies are strictly identical.

Beyond the numbers, several qualitative factors play a decisive rôle in negotiations:

• Management dependency: if the business cannot run without the owner, the buyer will price in a discount of 20 to 30%. This is the first red flag flagged by transfer advisers.
• Customer concentration: a single customer accounting for more than 30% of revenue is a major risk factor. Banks scrutinize this when analyzing financing applications.
• Margin quality: a gross margin that is stable or improving over 3 years is reassuring. A volatile or eroding margin invites detailed explanation.
• Contract solidity: long-term client contracts, commercial leases, and partnership agreements — the more legally secured the business, the more defensible the value.
• Account readability: certified, adjusted, and documented accounts ease the work of the buyer and their bank. Approximate accounts breed suspicion.
• Upcoming investments: a heavy capital expenditure plan (fleet renewal, compliance upgrades, digital transition) will be deducted from the valuation by the buyer.

Before launching the process, conduct the key diagnostics: The 6 Essential Diagnostics Before Transferring a Business.

A valuation that holds up in front of a buyer does not happen by accident. Here are the steps we recommend to our clients:

1. Reprocess the accounts for the last 3 financial years: eliminate non-recurring items, restate management rémunération at market rates, neutralize exceptional charges.
2. Document the strengths: client profiles, margin analysis by product line, process maps, functional organization chart.
3. Identify and provision the risks: ongoing disputes, compliance obligations, off-balance-sheet commitments.
4. Build a credible business plan: detailed growth assumptions, monthly 12-month cash flow forecast, prudential scenario.
5. Prepare the data room: all legal, tax, employment, and commercial documents grouped and indexed.

Each élément of this preparation increases the credibility of your valuation and reduces the buyer's negotiating margin. For tailored support, see our service: Prepare a defensible valuation of your company.

Starting From a Psychological Price#

Many business owners set a price based on their personal needs — retirement income, loan repayment — rather than the economic reality of the business. The market does not pay for your needs: it pays for future cash-génération capacity.

Confusing Revenue with Value#

A turnover of €2 million does not mean a company worth €2 million. If the net margin is 3%, the value will be far lower. This is a fréquent misunderstanding among first-time sellers.

Overlooking Latent Liabilities#

A probable tax reassessment, an ongoing employment tribunal case, a product warranty given: these éléments, if not identified and provisioned, become negotiating arguments for the buyer at the most critical moment.

Presenting Poorly Reprocessed Accounts#

Bare annual accounts, without analysis or adjustment, force the buyer to make their own assumptions. They will systematically choose the most conservative ones — which reduces the valuation.

For guidance on optimizing the structure of your transaction, also see Share Transfer.

There is no universally right or wrong method. Best practice is to cross at least two, or even three methods, to obtain a consistent value range:

• Profitable and stable businesses lend themselves well to DCF and EBITDA multiples.
• Asset-heavy businesses (real estate, industry) benefit from the adjusted net asset value approach.
• Startups and early-stage companies may require specific methods (Venture Capital method, Berkus score).

In all cases, convergence between multiple methods strengthens the credibility of the result. A significant gap between DCF and multiples must be explained and documented.

In 2026, business valuation is first and foremost a clarification exercise. The more clearly the risks are documented and the performance is readable, the more defensible the value becomes — in front of a buyer, a bank, or an investor. Do not leave your company's price to chance: prepare it with the same rigor you applied to building the business.

(Authority sources: Bpifrance Creation — business transfer and key success factors of the sale)