What is a small company worth? Valuation explained simply

A small company is worth as much as a buyer can earn with it in the future. The years of work you have put in count for a lot emotionally. But for the purchase price, they matter mainly through one question: how stable and transferable are the earnings?

The key points in brief.

• Future earnings are what counts, not the value of the machinery.
• The most common methods are the earnings value and multipliers.
• The less the business depends on you, the more it is worth.
• A realistic, independent valuation makes negotiations much easier.

The three most common methods.

Earnings value method: This method estimates the future profits of the business. This stream of income is then discounted to its present value. It is the classic method for small and medium-sized companies. For craft businesses, a standardised procedure from the local chambers is often used.

Multipliers: The value is calculated as a multiple of a key figure, such as profit or revenue. This is quick and easy to compare, but rough. For example: according to a KfW (Germany's state development bank) analysis, construction and craft businesses with less than 20 million euros in revenue usually sell for only 0.25 to 0.5 times their annual revenue. The median across all sectors is 0.6 (KfW Succession Monitoring 2025).

Asset value: This is the sum of all machinery, buildings, vehicles and stock. For the valuation of a going concern, it is usually just a lower limit.

What drives the value up.

• Stable, predictable earnings over several years.
• Many customers instead of a few large ones.
• A team that works without you.
• Documented processes and clean financials.
• Modern equipment without a major investment backlog.
• Growth opportunities that a successor can realise, for example through digitalisation.

What lowers the value.

• All important customers only know you.
• The financials are difficult to understand or are mixed with private expenses.
• Major investments have been postponed for years.
• One or two customers account for most of the revenue.

Asking price and market price.

Many owners have a clear asking price in mind. For handovers up to 2029, the average is around 499,000 euros, which is significantly higher than in the last survey (KfW Succession Monitoring 2025). KfW describes agreeing on a mutually acceptable purchase price as one of the most difficult steps in a succession.

A simple thought helps here: the purchase price must be financeable from future earnings. If the instalments for the bank loan and the vendor loan cannot be paid from the cash flow, it will be hard to find a bank or a successor.

How to get a realistic valuation.

• Prepare the figures for the last three to five years and adjust them for any one-off effects.
• Get an independent valuation, for example from your tax advisor or the local chamber.
• Honestly review the value drivers and, if there is time, improve them specifically.
• Consider flexible models like a vendor loan or an earn-out if asking prices differ.