Business valuation: what your SME is really worth, and why the three methods never agree

The question almost always arrives at the wrong moment: an acquirer has made contact, a partner wants out, a bank is asking for security. And the executive ends up scrambling for an answer to the question they should have asked two years earlier: “how much is my company worth?”

First disappointment: there is no single number. A serious valuation produces a range, built with several methods that do not tell the same story. Understanding why they diverge is already understanding how an acquirer will negotiate against you.

Why there is no single number

A company’s value depends on the question you ask. What will it generate tomorrow? What does it generate today compared with its peers? What does it own if everything stops? Three questions, three methods, three numbers. The negotiation plays out in the gap between them.

This is also why “the valuation” a broker gave you over the phone in 10 minutes is worthless in front of an equipped acquirer: they arrive with all three readings, and they will pick the one least favourable to you.

Method 1: comparable multiples, the acquirers’ language

The principle: your company is worth what comparable companies sold for, expressed as a multiple of an aggregate, most often EBITDA (operating profit before depreciation), sometimes revenue for recurring models.

What the method really requires:

• Relevant comparables. Same sector, same size, same geography, recent transactions. A multiple observed on an €80M mid-cap does not apply to a €4M SME: size itself commands a discount.
• A restated EBITDA. This is where everything plays out in an SME: owner salary above or below market, rent paid to your own property company, personal expenses run through the business, exceptional items. The acquirer will restate. Better to have done it before them.
• The bridge from enterprise value to equity value. The multiple gives an enterprise value; net debt must then be deducted. Many executives discover this subtraction at the letter-of-intent stage.

This is the method your counterparty will use first, because it is fast and grounded in real transactions. So it is the one you must master first.

Method 2: the DCF, the value of your future cash flows

The DCF (discounted cash flows) discounts the cash the company will generate in the coming years. On paper it is the most rigorous method: it values your future, not your past.

In practice, a DCF is worth what the business plan feeding it is worth. A conviction BP, built to impress, produces a fiction DCF. That is why a credible DCF starts with traceable assumptions: growth justified segment by segment, margins consistent with history, realistic capex and working capital.

Two parameters concentrate most of the sensitivity:

Parameter	What it captures	Effect of a small variation
Discount rate	The perceived risk of your cash flows	1 point of difference can move the value by 10 to 20%
Terminal value	What the company is worth beyond the horizon	Often more than half of the total value

A serious DCF valuation therefore never hands you a dry number: it hands you a sensitivity matrix, so you know what happens if growth slows by 2 points or perceived risk increases.

Method 3: revalued net assets, the balance-sheet floor

The revalued net asset method takes the balance sheet and restates each item at market value: property, machinery, inventory, holdings, minus debt. It is the patrimonial reading.

For a growing services SME it almost always gives the lowest number, and that is normal: the value sits in the cash flows and the clients, not the assets. It becomes central again in three cases: businesses with heavy property or industrial assets, holding companies, and situations where profitability does not justify more than the assets. In a negotiation it serves as the floor: below it, selling the assets beats selling the company.

What creates the discount or the premium

At equivalent sector multiples, two SMEs with the same EBITDA can sell for twice the difference. The gap comes from factors acquirers assess systematically:

Factor	Discount	Premium
Dependence on the owner	Everything goes through you	Autonomous team, documented processes
Client concentration	Top 3 clients > 50% of revenue	Diversified base, low churn
Revenue recurrence	One-shot projects	Multi-year contracts, subscriptions
Quality of information	Approximate accounting, no reporting	Reliable monthly reporting, clean data
Trajectory	Erratic growth	Steady, explainable growth

The good news: most of these factors can be worked on in 12 to 24 months. That is exactly the point of the sale preparation sequencing we detailed in a previous article: each workstream closes a discount line before the acquirer opens it.

The mistakes we see in the field

1. Confusing value and price. The valuation frames the discussion; the price comes out of the negotiation, the deal structure (earn-out, vendor loan, warranties) and the number of acquirers at the table. A flattering valuation with a single buyer remains a weak position.
2. Valuing at the last minute. A valuation run 18 months before the deal leaves time to fix what creates the discount. Run 3 weeks before, it merely records it.
3. Anchoring on the most flattering multiple. Anchoring on a sector unicorn’s multiple or a US transaction leads to negotiations that end at the first meeting. The credibility of your range is a negotiating asset.
4. Forgetting cash and debt. Enterprise value and equity value differ by the full net debt. Anticipating that bridge avoids the bad surprise at the letter-of-intent stage.

What a valuation will never tell you

A valuation, however rigorous, remains a methodological exercise: it informs a decision, it does not take it for you, and it does not replace the regulated acts some transactions require.

Scope of engagement. A Pelorus valuation is a methodological exercise with a strategic purpose. It does not constitute an independent expert attestation under article 261-1 of the AMF General Regulation, nor a regulated fairness opinion. If your transaction requires such an act, we will point you to an authorised expert.

What the exercise does give you: a defensible range built on the three methods, the quantified list of what creates your discount, and a support to anchor the discussion with an acquirer, a partner or a bank.

If the topic is on your desk, our Business Valuation crosses DCF, comparable multiples and revalued net assets in three weeks, with documented assumptions you can defend. The first 30-minute call is on us, and if your situation calls for something other than a valuation, we will tell you straight.