Financial evaluation of the company

First, based on your latest balance sheet and income statement, we will establish a restated balance sheet taking into account the following aspects

• the real value of fixed assets (goodwill, buildings, installations, equipment, etc.)
• off-balance sheet items (rented or leased equipment, etc.)
• over- or underpayments you receive
• the qualification of provisions
• the actual value of the inventory
• real debt
• cross operations
• exceptional operations

How much is your business worth?

Are there methods of valuing a company?
The real value is given by the market.

Of course, there are many different methods of evaluating an SME, each one more technical than the other.

However, we must not forget that, as in all markets, a correct financial valuation of the company depends on external elements such as :

• The number of potential investors
• The legal structure: a company with real estate on its balance sheet is sometimes a handicap for tax purposes
• The organization of the company. If there is a real number 2, the company reassures investors
• The sector of activity (a subcontracting company in a depressed market is difficult to finance whatever its value)
• The news
• Opportunity (an investor or competitor who wants to acquire your market share is willing to pay the price)

In general, you need to put yourself in the shoes of the investor who is looking to value the future and not the work that has been done.

The main evaluation methods

The main methods of financial valuation of the company are the following:

Methods based on net assets

• Net asset value
• Replacement value
• Market value
• Liquidation value

Cost-effectiveness methods

• Price earning ratio
• Discounted cash flow
• Dividend capitalization method
• Investor’s method: Multiple of EBIT (-) financial liabilities

Comparative methods

• Transactions in the same sector of activity
• Comparison with publicly traded companies

Principles to keep in mind

• The amount of the investment may be very different from the net price actually paid by the investor.
• Complex technical business valuation methods are rarely used in the context of fundraising.
• We often find that the multiple of net income or EBIT methods are the most used.
• A price negotiation always ends with a round number.

A study conducted by the BDPME (see documents/studies page) on a sample of 900 SME transactions showed that the average P/E of the transactions was 7 (i.e., the average sale price of an SME is 7 times its adjusted net income after taxes).

Discounts on the price

• Regardless of its asset value or profitability, a company’s valuation may be discounted based on the following factors
• The company has one major customer for more than 40% of its business
• The entrepreneur has personal relationships with large customers
• There is no business, a similar activity can be created by a competitor or an employee
• There is a significant investment backlog
• A minority shareholder does not want to open the capital
• There’s a big dispute going on
• The company is in litigation with its landlord
• Other risky activities are integrated into the operation.