In a transaction, a company is usually valued by multiplying normalised EBITDA by a multiple observed in comparable deals, then adjusting the result for net debt and the gap between actual and normal working capital. The other methods act as checks: discounted cash flow, asset-based, liquidation value and listed-company comparables. None of them works in isolation from what a buyer is actually willing to pay.
Why two valuations of the same company differ by half
Owners often end up with two numbers that have little to do with each other: one from the accountant, one from someone who heard about a deal in the sector. Both can be calculated correctly, because they answer different questions. A balance-sheet valuation says what the assets are worth. A transaction valuation says what someone will pay for the right to future profits. Only the second question matters in a sale.
The difference also comes from what counts as the company’s result. In owner-run businesses, accounting profit almost never matches the company’s ability to generate cash for a new owner. That is why every serious transaction valuation starts with normalisation.
Method 1: comparable transactions (multiples)
The method used most often in small and mid-sized deals. You take normalised EBITDA and multiply it by a multiple observed in comparable transactions in the same sector and at a similar scale.
The multiple is not a constant. It depends on the sector, company size, revenue repeatability, customer concentration and how dependent the business is on its owner. The same EBITDA in a company with subscription contracts and in one living off one-off projects produces an entirely different price.
When to use it: always as the starting point, if the company is profitable and has a repeatable model. Limitation: data on private transactions in Poland is patchy, so the multiple is always a range rather than a number.
Without this step no method works: EBITDA normalisation
Normalisation adjusts the result for one-off items and costs that will not exist under a new owner. In practice that usually means:
- owner remuneration that differs from the market rate for the same work,
- private expenses running through the company, such as car, phone and travel,
- rent paid to a related company above or below the market rate,
- one-off costs of litigation, a system implementation or a relocation,
- proceeds from asset sales booked in the operating result.
Every adjustment has to be documented. A buyer does not take add-backs on trust, and the buyer’s adviser will challenge them line by line. An adjustment you cannot show in documents does not exist.
Method 2: discounted cash flow (DCF)
You forecast cash flows for several years ahead and discount them back to today. In theory the most correct method, because it answers directly what future profits are worth.
The practical problem is that the answer is only as good as the forecast. In a company with revenue of a few million euros, where next year’s plan lives in the owner’s head, DCF produces a number with false precision. Moving the discount rate by two percentage points can change the result by a third.
When to use it: when the company has multi-year contracts or a predictable investment cycle. Limitation: in the mid-market, treat it as a check alongside comparables, not as the single source of the number.
Method 3: asset-based
The value of assets less liabilities, after restating book values. It answers what the company is worth taken apart.
When to use it: in asset-heavy, low-margin businesses, in property, and as a floor for the valuation. If the asset-based method gives more than the income-based one, the business is destroying value and the assets are worth more than the company.
Method 4: liquidation value
A variant of the asset method, calculating what is left after a quick sale of assets and repayment of liabilities. Rarely used in a normal transaction, but useful as a reference point in negotiation: it shows the level below which selling makes no sense at all.
Method 5: listed-company comparables
Multiples of quoted companies in the same sector, adjusted down for illiquidity and smaller scale. Helpful when private transaction data is missing, but it needs care: a listed company has different governance, different access to capital and usually far greater scale.
From valuation to price: what else moves the number
A valuation gives enterprise value. What reaches the owner is something else. Along the way you subtract net debt, including debt-like items many owners do not expect: leases, overdue public liabilities, unpaid dividends, loans from the owner. Then the price is adjusted for the difference between working capital at the transaction date and the level agreed as normal.
Finally there is the payment structure. The full price in cash at closing is not the same as the same price spread over a three-year earn-out. When comparing offers, what counts is not the headline but how much actually arrives and when.
What to do with this
If you are thinking about a sale in a few years’ time, a valuation is a diagnostic tool rather than a curiosity. It shows which parts of the business weigh most heavily on the multiple and what can be changed before anyone makes an offer. We describe that in more detail on the value growth programme page.
If you already have an offer on the table, a transaction valuation gives you the benchmark without which negotiations run on the buyer’s terms. The terms that will come up at that table are collected in our M&A glossary.
Common questions
How much does a company valuation cost?
In our model the valuation is part of a diagnosis billed as a flat fee. You know the amount before we start and it does not depend on the outcome. The details are agreed individually, because the scope depends on the size of the company and the complexity of its structure.
How long does a valuation take?
Four to six weeks from the moment three years of financial data are handed over. Most of that time goes on normalising the result and verifying documents, not on the arithmetic.
Will the buyer accept my valuation?
The buyer will do their own. A seller-side valuation is not there to convince them; it is there to give you a benchmark and arguments. The gap between two serious valuations of the same company usually sits within a range that can be negotiated.
See also
- EBITDA, normalised EBITDA and the EV/EBITDA multiple in the glossary
- Red flags: 12 areas every buyer examines, if you want to know what will push the valuation down
- The value growth programme, if a sale is still some way off
About the author
Łukasz Brzyski runs Brzyski & Partners Management Consulting. He advises on the sale and purchase of companies valued between PLN 10 and 50 million, and sold two companies he co-founded before he started advising others. More about the author