Business Goodwill Valuation in Paris

A French fonds de commerce is not the same thing as a company's shares. It is a set of intangible assets (customer base, trade name, sign, leasehold right) and tangible assets (equipment, fit-out) dedicated to an activity. It can be sold without selling the operating company, and that distinction changes everything, both value and tax.

Three mistakes recur among sellers:

• Confusing revenue with value. Two businesses with identical revenue can be worth three times one another depending on margin, owner dependence and lease.
• Applying a multiple without normalising. A multiple applies to normalised revenue, not to the raw revenue of an atypical year.
• Forgetting that the owner has to be paid. An operator drawing a very low salary shows flattering earnings that vanish the day a salaried manager replaces them.

Hayot Expertise, chartered accountant and statutory auditor in Paris 8, produces the reasoned, quantified valuation used to sell, to buy, to gift or to defend a value.

The choice depends not on the size of the business but on the use of the document. Forming a view before going to market is not the same work as defending a value before the tax authorities.

Trade multiples#

Every activity has its benchmarks, expressed as a percentage of annual revenue: a bakery, a restaurant, a pharmacy, a hair salon, a garage or a tobacconist are not valued on the same coefficient. These benchmarks, published by legal publishers and used as an indication by the French tax authorities, are market references, not a rule of law.

They provide a starting point. They say nothing about actual profitability, which is why a highly profitable business sells above the benchmark and a low-margin one below.

For coefficients by activity, see our reference article on the French goodwill valuation scale.

The earnings method#

This is the one that decides a bank-financed buyer. We start from EBITDA and normalise it:

• owner remuneration restated to the real cost of a salaried manager;
• intragroup or off-market rent restated to market rental value;
• personal costs carried by the business, removed;
• non-recurring items, neutralised.

That normalised figure is then capitalised at a multiple reflecting the risk of the activity and its dependence on the owner.

Comparables#

Recent transactions in the same trade, in the same catchment area, at comparable size. It is the most persuasive method in negotiation and the hardest to document, as France has no exhaustive public database.

• The commercial lease: rent against the local market, permitted use (broad or narrow), expiry, assignment clauses. A favourable lease is an asset; a constrained lease is a discount.
• Owner dependence: the share of revenue tied to the seller personally, how transferable the customer base really is, and how long a handover is needed.
• Customer concentration: a business where three customers make half the revenue is not worth one with a diffuse customer base.
• Condition of equipment and fit-out: investment needed within two years, compliance upgrades.
• Transferring staff: employment contracts attached to the business pass automatically to the buyer, with their seniority and acquired benefits.
• Inventory: valued separately from the business, on a joint stocktake.

The sale of a fonds de commerce triggers registration duties payable by the buyer, on the progressive tariff of article 719 of the French Tax Code. It also places the buyer under a temporary joint liability with the seller for certain taxes, under article 1684 of the same code, which in practice justifies escrowing part of the price.

On the seller's side, the gain falls under the professional capital gains regimes, with relief mechanisms whose availability depends on the value of the business, how long it has been operated and the owner's situation. These parameters are checked before signing: afterwards, the choices are locked.

• Selling: positioning before setting a price, preparing the information pack.
• Buying: checking the asking price holds, before or alongside an acquisition due diligence.
• Gifting or transferring: establishing a defensible value for a gift or a family transfer.
• Contributing the business to a company: this falls under the regulated contribution auditor engagement.
• Disputes: shareholder exit, divorce, litigation with a buyer.
• Financing: producing a documented value for a bank.

If you hold the business through a company and the question is whether to sell the shares rather than the business, the valuation changes nature: you are then valuing a company, with its cash, its debt and its contingent liabilities. That is the subject of our business valuation engagement.

Choosing between the two routes is primarily a tax decision, and it is settled before going to market, not at signing. Our business sale advisory covers that arbitrage.