What is my company worth? Business valuation in the context of business succession

Business valuation is a central foundation for strategic decisions – for example, in succession planning, the sale of a company, or the entry of investors. A sound valuation not only helps entrepreneurs during negotiations but also supports their own planning, and is therefore at the core of any succession arrangement.

Business succession: Valuing your life’s work

Business succession is one of the greatest challenges for entrepreneurs. In addition to business and tax considerations, it is above all the emotional component that makes the process so difficult. Handing over one’s life’s work is not easy. As a result, decisions are often delayed until time pressure forces quick solutions.

But especially the question of what the life’s work is ultimately worth is a decisive factor in the upcoming transfer. A company should therefore never be transferred or valued under time pressure. Instead, it is advisable to plan succession in the long term in order to positively influence the company’s value up to the point of transfer or valuation.

Why is business valuation so important?

A business valuation helps determine a company’s value and is therefore indispensable for well-founded negotiations. It creates transparency and clarity in situations such as sales, inheritance disputes, shareholder changes, mergers, or divorces.

Benefits for different parties:

• Entrepreneurs use the valuation for strategic decisions such as succession or restructuring.
• Investors gain an objective assessment of the company’s potential and risks.
• Buyers avoid overpayment and minimize risks.
• In cases of inheritance or divorce, valuation helps achieve fair settlements.

Valuation is not just a numerical analysis but a strategic tool that also reflects a company’s future opportunities, risks, and earning power. Although the “right” company value is often perceived differently, a solid valuation helps avoid major misjudgments and provides a basis for negotiation.

It is therefore so important because it creates transparency, objectivity, and decision-making foundations for a wide range of business processes – from sales to succession and beyond.

Important to know: A common misconception is equating the determined company value with the achievable sales price. Instead, valuation provides a solid starting point for negotiations.

Depending on the stage, different valuation approaches and methods may be used.

What methods of business valuation exist?

There is no universally valid procedure to determine the exact value of a company. Instead, various calculation methods exist. Market prices cannot usually be directly derived from market parameters for owner-managed small and medium-sized enterprises.

A distinction is made between past-oriented and future-oriented methods:

Asset-Based Method: What tangible assets are in the company?

In the asset-based method, all assets such as buildings, machinery, and inventory are valued. After deducting liabilities, the result is the asset value.
Disadvantage: The company’s future earning power is not considered.

Income-Based Method: How much profit does the company generate?

This method focuses on future earnings surpluses. The decisive factor is what revenues the company can generate in the coming years to cover the invested purchase price in the medium term.
Challenge: Realistically estimating an appropriate discount rate and the projected future cash flows.

Multiple Method: Market-based orientation

Here, comparisons with similar companies serve as the basis. Companies are often valued as a multiple of their operating profit (EBITDA multiple). The reliability strongly depends on the comparability of the data and is often used to validate other methods.

Overview of valuation methods

Method	Basis	Advantage	Disadvantage
Asset-based method	Assets – Liabilities	Clear presentation of tangible assets	No consideration of future earnings
Income-based method	Future earnings	Forward-looking	Depends on chosen discount rate & forecasts
Multiple method	Market comparison (EBITDA)	Orientation on market prices	Limited comparability

Ultimately, it is up to negotiations between seller and successor to agree on a reasonable purchase price.

Company value: Initiating long-term measures early

It is advisable to implement value-enhancing measures early on to optimize sustainable earning power and the company’s balance sheet structure. A long-term succession plan and process are crucial to ensuring a successful transaction.

Important to know: A structured process usually takes at least 6 to 12 months.

By leveraging process optimization potential, liquidity tied up in the company (working capital) can be reduced, allowing a larger amount to be distributed during succession. In addition, adjusting liabilities can improve the debt ratio.

As part of the transaction, three to five years of financial statements are usually analyzed in the course of due diligence. Non-sustainable measures are revealed and neutralized. Furthermore, by initiating measures to increase company value at an early stage, the company’s standing in succession can be steadily improved.

Business Valuation 2025: Current Developments

Valuation practice is constantly evolving. The following points are now decisive for current company valuations:

• Updated Valuation Standard: The IDW ES 1 standard has been further developed, now incorporating modern value concepts and greater market orientation. The role of external market and competition analyses as well as the consideration of synergy effects has been strengthened. The cut-off date principle and information boundaries are interpreted in a more practical way, leading to greater transparency and increased documentation requirements.
• Higher Base Interest Rate: After years of historically low levels, the base rate according to IDW S 1 is now 3.00% as of 01.09.2025. This raises capital costs and significantly affects income-based and discounted cash flow calculations. This development reflects current macroeconomic conditions and monetary policy.
• Market Multiples & Digitalization: Comparisons with current market multiples and the role of digitalization are gaining importance. Multiples continue to serve as validation for other methods – industry averages (e.g., EBIT or EBITDA multiples) are key decision criteria in the M&A market.
• ESG Factors: Sustainability criteria are increasingly taken into account: innovation capacity, resilience, customer and employee retention, and cybersecurity have become important qualitative elements in valuation.

Recommendations for your business valuation

• Select the appropriate valuation method together with experienced professionals.
• Transparency and a sensitive approach help avoid uncertainty and create clarity for all parties involved.
• Consider not only financial aspects but also qualitative factors such as corporate culture and future viability.

A careful, comprehensible business valuation is essential for succession, sale, and investor search. However, the initial question “What is my company worth?” cannot be answered in general terms – the decisive factors are the objective, the chosen method, and current market conditions.

And not to forget: Especially in family succession or employee transfers, emotional factors and questions of continuity play a major role. It is not uncommon to deliberately forego the highest price in order to place the life’s work in trusted hands.

FAQ: Frequently asked questions about business valuation

How do I calculate company value?
Depending on the method, either assets (asset-based value), future earning power (income-based value), or a market comparison (multiple) is used.

Which method is suitable for SMEs?
For small and medium-sized enterprises, the income-based method is often applied, supplemented by market multiples for validation.

How does the 2025 interest rate affect valuation?
The base rate of 3.0% increases capital costs and may reduce company value if profits remain constant.

What role does sustainability (ESG) play in valuation?
ESG factors such as energy efficiency, innovation, and employee retention are increasingly considered and enhance company value.