What is my company worth?

Complete guide to business valuation: methods, examples and practical cases

Did you know that business owners don't really know their business's value until they try to sell it? If you've ever wondered how much that workshop or online store you're looking at is worth, or if you own a business and don't know where to begin pricing it, this guide is exactly what you need.

Let's take Talleres Pepe, a mechanic's workshop with an annual turnover of €500,000, and value it together using four professional valuation methods. You'll see how the same figures can yield a value of €250,000 or €400,000 depending on the method, and why both figures can be correct. By the end, you'll know what to look for in the commercial registry, which formulas to apply, and what mistakes to avoid in your first negotiation.

What is business valuation and why is it essential?

The business valuation It is the process of determining the economic value of a business in euros. This methodology is essential both for buyers seeking to acquire companies at a fair price and for sellers who wish to recognize the true value of years of effort and work.

The duality of valuation: objectivity vs subjectivity

A crucial aspect in the business valuation methodologies It's about understanding that there's both an objective and a subjective dimension. While financial figures provide a solid foundation, factors such as location, potential synergies, and rapport with the seller significantly influence the final value.

Fundamental principle: A company is worth what an entrepreneur or business owner is willing to pay for it.

How to value a company: main methods

1. Valuation by assets: the liquidation value

Asset valuation answers a fundamental question: What is a company worth if I liquidate it today? This method is especially useful when:

• The company is not profitable or is operating at a loss.
• The assets have a significant value relative to the revenue.
• Liquidation of the business is being considered.

Practical example: Pepe Workshops

Asset	Worth
Machinery and installations	150.000€
Inventory (spare parts, oils)	30.000€
Premises owned	200.000€
Total assets	380.000€
Minus: Bank debt	-50.000€
Net asset value	330.000€

 

2. Valuation by EBITDA multiples: the most widely used method

Enterprise value calculation formula using EBITDA multiples

The valuation by EBITDA multiples It is the preferred method on the market due to its simplicity and effectiveness. The basic formula is:

Enterprise Value = EBITDA × Equity Value Multiple = Enterprise Value - Debt

How to calculate the value of a company using EBITDA

Starting with our example of Pepe Workshops:

• EBITDA: 150.000€
• Applicable multiple: 2-3x (typical for small mechanical workshops)
• Business value: 300.000€ – 450.000€
• Equity value (after subtracting €50,000 of debt): €250,000 – €400,000

3. PER (Price to Earnings Ratio) Method

The PER indicates how many years it takes to recover the investment:

• PER 2.47Recovery in 2.5 years (optimistic scenario)
• PER 3.95: Recovery in 4 years (conservative scenario)

4. Discounted cash flow (DCF) valuation

Alt image: Cash flow projection diagram for DCF valuation

The DCF method is more technical and precise, ideal for:

• Companies with predictable cash flows
• Growing businesses with clear projections
• Sophisticated investors seeking precision

Key elements of the DCF:

• Flow projection5-10 years
• Growth rate: 5% annual (example)
• Discount rate: 10% (opportunity cost)

How to calculate the value of a company: essential financial metrics

Step-by-step analysis of key metrics

Alt image: Table of financial metrics for company valuation

To perform a business valuation To be precise, you need to calculate:

1. Annual sales: 500.000€
2. Cost of sales: 250.000€
3. Gross margin: 250.000€ (50%)
4. Operating expenses: 100.000€
5. EBITDA: 150.000€
6. EBIT: €140,000 (after amortization)
7. Net profit: 101.250€
8. Free cash flow: 96.250€

Business valuation methods by sector

Typical multiples according to business type

Alt image: Comparative infographic of EBITDA multiples by sector

Sector	Typical EBITDA multiple
Small mechanical workshops	2-3x
Retail trade	1.5-2.5x
Professional services	3-5x
Technology companies	5-15x or more
Infrastructure companies	12-15x

What is a company worth based on its revenue?

The relationship between revenue and enterprise value varies significantly depending on the sector and profitability. For example:

• Company with a turnover of 1 million eurosIts value can range between €200,000 and €1,500,000 depending on EBITDA and the sector
• Key factorProfit margin is more important than gross revenue.

How to value a company for sale: a practical guide

Step 1: Collection of data from the business register

In Spain, companies must register their accounts annually, providing access to:

• Profit and loss account
• Balance sheet
• Annual report

Step 2: Calculation of fundamental metrics

Alt image: Process for calculating metrics for business valuation

1. Obtain financial data from the last 3-5 years
2. Calculate normalized EBITDA
3. Identify trends and patterns
4. Apply adjustments for extraordinary factors

Step 3: Selecting the appropriate method

• Profitable companiesEBITDA Multiples
• Companies with lossesValuation by assets
• Startups or high growth: DCF
• VerificationAlways use market comparables

Common mistakes when valuing companies

The 5 most common mistakes and how to avoid them

Alt image: Checklist of common mistakes in business valuation

1. Emotional overvaluationMaintain objectivity, especially if you "love" the business.«
2. Forget the debtDebt always subtracts from enterprise value
3. Mixing methods incorrectlyEach method has its specific purpose
4. Ignore hidden costs: Consider compensation, necessary investments and renewals
5. Do not verify dataAlways compare with the official accounts of the commercial register

Business valuation: practical examples

Real case: valuation of a mechanical workshop

Alt image: Practical case study of the valuation of Pepe Workshops

Applying the three main methods:

1. By assets: €330,000 (net assets)
2. By EBITDA multiples: 250.000€ – 400.000€
3. Market Comparables: 275.000€ – 375.000€

Recommended end fork: 250.000€ – 400.000€

Advanced methodology: adjustment factors in valuation

Elements that modify the base multiple

Alt image: Matrix of adjustment factors for business valuation

• Recurrence of incomeLoyal customers or one-off sales?
• Dependence on the ownerCan it function without the current owner?
• Customer concentrationDoes it depend on a few large clients?
• Business ageMore years = greater stability = higher multiple
• Sector risksRegulatory changes, competition, obsolescence

What is the discount rate? A simple explanation

Alt image: Explanatory chart of the discount rate in valuation

Imagine you have €100,000 to invest. Your options:

• Bank (3% annual): No risk
• Stock (8% annual)Medium risk
• Business (15% annual)High risk

The discount rate (10% in our example) represents the "minimum" you demand to earn for the risk taken. It is the opportunity cost: what you "lose" by not investing in another alternative.

Final conclusions and advice for business valuation

Summary of when to use each method

Alt image: Decision tree for selecting a valuation method

• Valuation by assetsCompanies that are loss-making or have valuable assets
• EBITDA MultiplesThe most used for profitable companies
• DCFFor detailed analysis with predictable flows
• ComparableAlways as a supplementary reference

Practical tips for negotiating

1. Never use only one method, combine at least two
2. The rating range is normal and expected.
3. Subjective factors matter: location, synergies, trust
4. Always verify with data from the commercial registry
5. The final price is what both parties agree on.

Frequently asked questions about business valuation

How to know how much a small company is worth?

For small companies (€30,000 – €400,000), the most effective method is the EBITDA multiple adjusted for specific business and sector factors.

What is my company worth if I have a turnover of €500,000?

The value depends more on profit than revenue. With an EBITDA margin of 30% (€150,000), the value could be between €300,000 and €450,000.

How to calculate the value of an ongoing business?

Use the EBITDA of the last 3 years, normalize extraordinary expenses and apply the corresponding sector multiple.

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Final note: This guide is designed for small business owners and entrepreneurs looking to buy or sell a company at a fair price. The examples use fictional but realistic data based on actual transactions in the Spanish market.

Alt image footer: Business valuation certification logo

1️⃣ Introduction to business valuation – ✅ Published

– What does it mean to value a company and who benefits from it?
– Target companies: €30,000 – €1M (focus on €60,000 – €400,000)
– Three types of valuation: assets, income (EBITDA and DCF) and comparables
– Subjectivity vs. objectivity: «A company is worth what someone is willing to pay for.»

2️⃣ Key concepts and calculation of financial metrics – ✅ Published

– Case study: Pepe Workshops (€500,000 sales, €150,000 EBITDA)
– Step-by-step calculation: gross margin, EBITDA, EBIT, net profit, free cash flow
– Data from the Spanish commercial register as the main source
– Assets: €380,000 (machinery, inventory, premises) less €50,000 debt

3️⃣ Valuation by assets (Promotional) – ✅ Published

– Promotional video for the complete course
– Comparison: valuing businesses vs valuing cars/houses
– Invitation to the free course on YouTube

4️⃣ Valuation by EBITDA and P/E multiples – ✅ Published

– Most commonly used method: EBITDA × Multiple (2-3x for small workshops)
– Resulting valuation: €250,000 – €400,000 (after subtracting debt)
– PER explained: investment recovery in 2.5 – 4 years
– Factors of the multiple: risk, stability, age, confidence

5️⃣ Discounted cash flow (DCF) valuation – 🔄 In progress

– Projection of future cash flows
– Discount rate: what it is and why it matters
– Case of the mechanic's workshop with 5% growth and 10% discount

6️⃣ Market comparables and industry rules – 🔄 In progress

– What they are, how to find them and how to apply them
– Typical multiples by sector (workshops: 2-3x, services: 3-5x, tech: 5-15x)

7️⃣ Common mistakes when valuing companies – 🔄 In progress

– Typical mistakes: emotional overvaluation, forgetting debt, mixing methods
– Real cases and how to avoid them

8️⃣ Final conclusions and advice – 🔄 In progress

– Summary of methods and when to use each one
– How to combine methods for greater accuracy
– Practical tips for negotiating

9️⃣ How do we value companies at Negociera? – 🔄 In progress

– Our own methodology
– Modified EBITDA and adjustment factors: recurrence, owner dependence, concentration, age, risks, etc.

📌 Bonus: What is the discount rate? (explained for dummies) – 🔄 In progress