The Ultimate Guide to Business Valuation

Anthony Mandanice
Nov 26, 2025
2 min read

1. Why Value a Business?

Business valuation isn’t an exact science; it’s an estimate based on assumptions. It’s crucial for:

Buying or selling a company
Bringing investors on board (fundraising)
Succession planning or family transfer
Resolving disputes between partners

2. The Three Main Valuation Approaches

No valuation guide will tell you to rely on just one method. The best practice is to combine several methods to get a realistic range of value.

A. Asset-Based Approach (The Past)

This is the “accountant’s method,” focusing on what the business owns today.

Principle: Assets (what the company has) minus Liabilities (what it owes)
Key Method: Revalued Net Asset (RNA). Adjust the balance sheet to reflect market value (e.g., a building purchased 20 years ago may be worth much more today).

Ideal for: Asset-heavy businesses (real estate, holdings, heavy industries). Less relevant for startups or service-based companies.

B. Income Approach (The Future)

This approach is favored by financial investors. A business is worth what it will generate.

Method: Discounted Cash Flows (DCF). Project the cash flows the company will generate over the next 5–7 years and discount them to account for time and risk.
Simplified Formula: Value = Future Cash Flows / Discount Rate

Ideal for: Growing companies, startups, or businesses with stable and predictable models.

C. Market Approach (The Present)

This is the “real estate method”: “What did the neighbor sell for?”

Method: Multiples. Apply a multiplier to a financial metric (usually EBITDA or Revenue).
Example: If competitors sell for “7x EBITDA” and your EBITDA is €1M, your business is worth roughly €7M.

Ideal for: Typical SMEs, retail businesses, or companies in standardized sectors.

3. Intangible Factors (Goodwill)

Numbers don’t tell the whole story. Two companies with identical balance sheets can have very different prices because of goodwill, which includes:

Brand reputation
Quality of the team and independence from the founder (a company that collapses without the owner is worth less)
Customer base (loyalty, recurring revenue)
Intellectual property (patents, software)

4. Key Steps for a Successful Valuation

Diagnostic: Clean up the accounts before calculating—remove exceptional expenses, adjust owner compensation if above market.
Choose Methods: Select at least two approaches relevant to your industry.
Weighting: Create a weighted average of the results (e.g., 60% Income Approach + 40% Asset-Based Approach).
Negotiation: Valuation gives a theoretical price. The final price depends on supply and demand.

Expert Tip: If you’re looking for tools or guides, check resources from BDC (Business Development Bank of Canada), Bpifrance, or specialized blogs like CessionPME or Fusacq.