Valuing your company before a sale: 3 key methods

Quick answer. Three methods coexist to set a sale price: the asset-based approach (adjusted net assets), the earnings approach (EBITDA multiple or percentage-of-revenue benchmark) and the cash-flow approach (DCF). They rarely produce the same result. The agreed price is a reconciled range, defensible with both the buyer and the tax authorities.

You are considering selling your company and the first question arrives quickly: what is it worth? There is no single figure. Depending on the method used, the value of the same business can vary by a factor of two or more, because each approach measures something different: what the company owns, what it earns, or what it will earn tomorrow. Understanding why these methods diverge gives you the means to set a defensible price rather than announcing a number the buyer will chip away point by point.

This article compares the three approaches from the seller's standpoint, shows how EBITDA adjustments shift the value, and explains how the tax authorities assess a sale price. For detailed benchmarks and formulas, we refer to the 2026 methods and benchmarks guide; here the angle is decision-oriented: which method to sell, and why.

A company does not have one value, it has several depending on the angle of observation. The asset-based approach looks at the balance sheet: what the company holds once assets and liabilities are revalued. The earnings approach looks at the income statement: the ability to generate recurring profit, capitalised through a multiple. The cash-flow approach looks ahead: the cash the company will produce, discounted to today.

The same file can therefore show a modest asset value but a high earnings value (a low-capital, highly profitable services company), or the opposite (a property holding rich in assets but with low operating profit). The relevant method depends on the business model, not on a preference.

Our reading. None of these three methods is superior in absolute terms. Best practice is to apply at least two, explain why they diverge, then converge towards a range. A price presented with a single method negotiates poorly because it has no comparative foundation. For an overview, see our article on valuing a business.

Comparison table of the three approaches#

The asset-based approach starts from book equity and corrects it to reflect the real value of assets and liabilities: this is adjusted net book value. Property is revalued at market, obsolete inventory and doubtful receivables are written down, latent gains and losses are integrated, and provisions and off-balance-sheet commitments are reviewed.

This method suits asset-heavy structures: holdings, property companies, businesses holding significant assets. It is far less suited to a services company whose value lies in know-how, client base or brand, items largely absent from the balance sheet.

The underestimated risk. Adjusted net assets almost always undervalue a profitable company, because they ignore goodwill, the premium tied to the ability to generate profit. A seller who relies solely on net assets often leaves value on the table. Conversely, for a property holding, it is frequently the most meaningful method.

This is the most common approach for an SME sale. The principle: apply a multiple to an earnings figure. The EBITDA multiple is the most widespread; operating profit or net profit multiples are also used. For very small businesses and going concerns, percentage-of-revenue benchmarks apply, varying strongly by sector.

The order of magnitude of the multiple depends on the sector, size, growth and dependence on the owner. It is always an indicative range drawn from comparable transactions, never a certainty. For benchmarks by activity, see our 2026 sector multiples and, for going concerns, the business benchmarks.

Why EBITDA adjustments change everything#

This is where most of the negotiation plays out. Gross book EBITDA does not reflect the real profitability transferred to the buyer. It must be adjusted to neutralise what belongs to the seller rather than the business. One point of adjusted EBITDA times the multiple translates directly into thousands of euros of price: a neglected adjustment can shift the value considerably. The detail is in our dedicated article on the adjustments of EBITDA.

From profit to adjusted EBITDA#

What the tax authorities look at. EBITDA adjusted aggressively upwards, without supporting evidence, weakens the file in the event of an audit as well as with a demanding buyer. Adjustments must be documented, consistent year on year and backed by verifiable items (contracts, payslips, invoices).

The discounted cash flow method discounts projected free cash flows at the weighted average cost of capital, then adds a terminal value representing value beyond the forecast horizon. It suits growing companies, recurring-revenue models and projects where future profitability differs markedly from the past.

Its strength is also its weakness: it rests entirely on assumptions. A few points of variation on the long-term growth rate or the discount rate changes the result significantly. A DCF value without a solid business plan and a sensitivity test carries little weight in negotiation.

Trade-off: multiples or DCF? For an established SME with stable profitability, the EBITDA multiple is simpler, more comparable and better accepted by buyers. DCF is needed when the past does not predict the future: strong growth, recent heavy investment, a change of model. In practice, both are often presented and the gap is commented on, rather than deciding in advance.

A frequent and costly confusion: the value from an EBITDA multiple or a DCF is an enterprise value, not the price the seller will receive. The share price is derived from it after adjusting for the financial structure.

From enterprise value to equity value#

These adjustments are not incidental: on an indebted company, net debt can absorb a significant part of the enterprise value. The mechanism and the trap of normalised working capital are detailed in our article on net debt and normalised working capital.

For blocks of shares, discounts and premiums apply: a control premium for a majority block, a minority discount for a minority stake, an illiquidity discount for unlisted shares. In a split-ownership transfer, the allocation between usufruct and bare ownership follows the scale of article 669 of the French Tax Code.

1. Gather the last three years' accounts, the tax return and a realistic forecast.
2. Adjust EBITDA: owner's pay at market, exceptional items, non-operating charges.
3. Apply at least two methods (asset-based plus earnings, or earnings plus DCF) and compare results.
4. Move from enterprise value to share price: net debt, surplus cash, normalised working capital.
5. Apply discounts or premiums (control, minority, illiquidity) depending on the block sold.
6. Build a reasoned range and document every assumption for the negotiation and the tax authorities.

• Owner's pay brought back to a market replacement salary.
• Exceptional or non-recurring income and charges neutralised.
• Rent and personal costs reintegrated or normalised.
• Obsolete inventory and doubtful receivables written down.
• Provisions and off-balance-sheet commitments reviewed.
• Net financial debt and surplus cash correctly isolated.
• Normalised working capital estimated, not just the closing-date figure.
• Adjustments consistent year on year, with supporting documents.

Setting a sale price is not just an agreement between seller and buyer. The tax authorities have a reference framework, the DGFiP guide to valuing businesses and company shares, and compare the stated price with the open-market value. A price clearly below that value can be reclassified: where the parties are linked, the gap may be treated as a disguised gift and trigger a reassessment.

The issue is especially sensitive in intra-family sales, sales to managers and holding operations. The seller's protection lies in the quality of the valuation file: multiple methods, justified adjustments, traceable assumptions. That is precisely what makes a range defensible.

2026 points of attention. Valuation also drives downstream taxation. The capital gain on a share sale falls, unless the progressive scale is elected, under the flat tax of 31.4% in 2026 (12.8% income tax and 18.6% social levies, to be confirmed for your situation). The sounder the basis, the better the sale-then-taxation sequence holds. The tax planning itself (allowances, contribution-sale, gift before sale) deserves a dedicated meeting, beyond the scope of this article.

Recently, a seller presented his company with a price based on a single EBITDA multiple applied to gross book EBITDA, without any adjustment. The figure looked attractive. On reworking the file, two movements first offset then opposed each other: his pay was well below market, which artificially inflated the reported EBITDA, while personal costs were running through operations. Once EBITDA was normalised and net debt deducted to reach the shares, the range tightened around a different value, but this time argued line by line.

What this situation illustrates, common in transfer files: the first price a seller quotes is almost always a balance-sheet or gross-multiple price, rarely an adjusted share price. Value is not declared, it is demonstrated. Our role, within the firm's business valuation engagement, is to build that demonstration: cross the methods, document each adjustment, and produce a range that holds up with both the buyer and the tax authorities. As a chartered accountant and statutory auditor registered with the professional body, we also act on operations requiring an independent third party (contributions, mergers), in connection with our business transfer support.

In practice. Count on the last three years' accounts, a forecast and a serious adjustment effort before sharing any figure with a buyer. A price quoted too early, then revised downwards, undermines the whole negotiation.