Thevaluation of a business is a crucial step in any sale, transfer or fund-raising operation. All too often reduced to a simple sales multiple, it merits a rigorous, multi-dimensional analysis. Because behind the same level of activity, two businesses can conceal very different economic realities and values.
In this article, XVAL gives you a comprehensive overview of valuation methods, the essential criteria to take into account, and common mistakes to avoid.
What is goodwill?
Goodwill comprises all the tangible and intangible assets that enable a company to carry on its business: clientele, leasehold rights, brand name, licenses, equipment, inventory, etc. It does not include premises, debts or receivables. It does not include premises, debts or receivables.
When it comes to valuation, this broad scope requires analysis of several dimensions: financial, legal, commercial and sectoral. The value of a business will depend as much on the quality of its clientele as on its location or operating margins.
Why is business valuation so complex?
Unlike a simple production or service company, a business often includes a high proportion of intangible assets (clientele, location, leasehold rights). These elements do not always appear in the accounts, or are poorly valued.
Furthermore, economic performance can vary widely: two bakeries with sales of €500,000 can have a profitability gap of 1 to 4, depending on purchasing control, staff management and rental costs.
Only a complete analysis of flows and the business model can reveal the true value.
1. Patrimonial method: to set a floor value
The patrimonial method consists in valuing the real net assets of the business (furniture, equipment, fixtures and fittings, inventory, etc.), by adjusting their book value by their market value. This makes it possible to set a "floor" value, useful in the event of liquidation or litigation.
At XVAL, we make systematic adjustments to the valuation of goodwill:
- Revaluation of obsolete or depreciated fixed assets,
- Estimates for certain equipment (kitchen, computers, furnishings, etc.),
- Valuation of actual stock and depreciation of unsold goods.
Limitation: this method ignores profitability and potential. It is not suitable for activities with high intangible value or rapid growth.
2. The multiples method: the most widely used comparative approach
This is the most common method used for fund disposals. It consists of applying a sector multiple to a performance indicator such as :
- sales excluding VAT,
- oradjusted EBITDA.
One of the most frequently used tools is the Francis Lefebvre scale, which lists valuation ranges by business sector (cafés, restaurants, pharmacies, etc.). Although it has no legal or normative value, this scale is often used as a guideline for initial estimates. For example, it may suggest a valuation of between 40% and 120% of sales, depending on the business.
However, these multiples must be adapted to the economic reality of each case: quality of location, age of clientele, fixed costs, etc.
Example:
Two hair salons have the same sales figure (€250,000):
- One generates €15,000 EBITDA (high rent, poor management),
- The other €60,000 (good organization, controlled costs).
With a 3× multiple applied to EBITDA, the former would be valued at €45,000, the latter at €180,000 - a valuation difference of 4× for identical sales.
➡️ At XVAL, we use in-house databases, fed by over 3,000 files processed each year, and always put the multiples into perspective with the reality on the ground and the adjusted economic performance.
3. Discounted Cash Flow (DCF): for high-potential funds
The DCF (Discounted Cash Flow) method is more technical, but highly relevant in cases where the fund has visibility over its future cash flows (franchises, established businesses, recurring activities). It consists of discounting forecast net cash flows over 5 to 7 years at a rate reflecting the risk of the sector.
Ideal for: high-recurrence businesses, controlled growth, or with economies of scale (multi-sites, franchising, etc.).
This method requires you to model realistic growth, margin and investment assumptions. We also need to anticipate working capital requirements (WCR) and potential capital expenditure (CAPEX). A poor estimate of one of these parameters can completely distort the valuation.
The choice of discount rate is crucial. It must reflect the risk level of the business, the size of the company, the sector and its competitive position. In practice, a rate of between 8% and 15% is often used. The higher the rate, the lower the present value.
Another point to watch is the terminal value (or residual value), which often represents more than 50% of the calculated final value. It is based on the assumption of sustainable profitability beyond the forecast period. This projection must therefore be consistent with industry trends, the company's positioning and its potential longevity.
The DCF (Discounted Cash Flow) method is more technical, but highly relevant in cases where the fund has visibility over its future cash flows (franchises, established businesses, recurring activities). It consists of discounting forecast net cash flows over 5 to 7 years at a rate reflecting the risk of the sector.
🌟 Ideal for: high-recurrence businesses, controlled growth, or with scale effects (multi-sites, franchising...).
A XVAL consultant will call you back to give you the information you need:
4. Direct comparative method: when references are available
The direct comparative method is based on an analysis of recent transactions involving similar businesses in a comparable geographical area and business sector. It is particularly used in environments where the market is relatively liquid and homogeneous, such as large conurbations, shopping malls, city centers, or certain highly codified sectors (pharmacies, tobacconists, bakeries).
Its main advantage lies in its direct connection to the market: it enables us to ascertain the value at which funds have actually been exchanged, under normal market conditions. However, this requires access to reliable transaction databases (notary files, local experts, reprocessed advertisements, etc.) and the ability to interpret them with discernment: by integrating the specific conditions of each sale (duration of lease, equipment, staff retained, exact location, etc.).
At XVAL, we use this method as a validation or cross-checking tool. It is rarely sufficient on its own, except in highly standardized cases. It reinforces or modulates the results obtained from multiple or flow approaches, especially when there is an active market in the sector under consideration.
5. Weighting methods to refine evaluation
Most professionals - and XVAL in particular - favor a multi-criteria approach, cross-referencing the results of several methods. Here's a typical weighting:
| Method | Indicative weighting |
|---|---|
| Multiples Adjusted EBITDA | 50 % |
| Patrimoniale | 20 % |
| DCF | 20 % |
| Local market comparison | 10 % |
This weighting may vary from case to case. In a negotiation or litigation context, it can be used to justify a solid, defensible value range.
6. Classic pitfalls to avoid
📉 Don't rely solely on sales without analyzing margins.
🔐 Don't forget hidden expenses (undervalued manager's remuneration, free rent, exceptional expenses...).
📊 Realistically value inventory and equipment, with experts as needed.
🔒 Analyze the commercial lease (remaining term, destination clause, revision...).
🤞 Take into account local competition, visitor trends, dependence on a location or a person.
Conclusion: a reliable business valuation requires a detailed analysis of the business model
Valuing a business is much more than applying a standard coefficient. It's about understanding the business, the potential, the risks, and translating them into value.
At XVAL, we have developed a rigorous methodology, accessible online, to provide complete, contextualized reports that can be used legally or in negotiations.
💡 Would you like to know the real value of your business?
A consultant will call you back within the day:
In the case of a valuation for a contribution or transformation audit, our dedicated website: https: //commissariat-apports.fr/
