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Business valuation: definition, methods and challenges

Goodwill comprises all the tangible (furniture, equipment, stock) and intangible (clientele, trade name, brand name, patents, etc.) assets that make up a company's commercial activity. Valuing a business involves estimating its market value with a view to sale or transfer.

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The challenges of goodwill valuation

Valuing a business is a crucial step for all entrepreneurs wishing to sell or transfer their company. It enables a realistic and fair selling price to be determined, based on various criteria such as the company's profitability, development potential, competition and market.

Goodwill valuation can also be useful for investors or banks wishing to assess a company's solvency before acquiring it or granting a loan. It measures the company's ability to generate income and repay its debts.

Business valuation methods

There are several methods for valuing a business, each with its own advantages and limitations. The most commonly used methods are :

The profitability method: this involves estimating the future profitability of the business based on past results and taking into account future prospects. It enables us to calculate a selling price based on the company's ability to generate profits.

The comparative method: this involves comparing the goodwill with other similar businesses on the market. It enables us to estimate the market value of the business based on price references observed on the market.

The patrimonial method: this method consists of estimating the value of the tangible and intangible elements of the business, taking into account their condition and obsolescence. It is used to calculate the replacement value of the business.

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    Is there an official business valuation scale?

    There are no official rules for valuing business assets. However, there are common practices for estimating the value of a business based on its sector of activity and location. These practices can be presented in the form of valuation scales, which give price ranges based on the company's sales or net profit.

    For example, in the restaurant sector, the valuation scale can range from 50% to 80% of annual sales. In the hotel sector, the scale can vary between 70% and 100% of annual sales. In the bakery-pastry sector, the scale can range from 30% to 50% of annual sales. However, these scales are not absolute rules, and can vary widely depending on a number of criteria, such as the location of the business, the condition of the equipment, the reputation of the brand, etc.

    Increase the value of your business

    Valuing a business is a crucial step for all entrepreneurs wishing to sell or transfer their company. It enables a realistic selling price to be determined, based on various criteria such as the company's profitability, development potential, competition and market. XVAL consultants, specialized by business sector, are at your disposal to draw up a detailed valuation report for your business within 3 days:

      Simply complete this form and an expert will contact you within 24 hours to evaluate your business or answer your questions:









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