What price to sell my business? Setting the right price

Value vs. price: two different things

This is the fundamental distinction to understand before any sale negotiation. Value is an objective calculation based on recognized financial methods. Price is the result of negotiation involving power dynamics, urgency, competition, and market context.

Examples:

• Your company has an estimated DCF value of €2M. But you're pressured to sell with only one buyer. You accept €1.7M. Price is below value.
• You have an SME in high-demand sector (tech, healthcare). Three serious buyers make offers. Competitive bidding lets you negotiate €2.4M. Price exceeds value.
• On average, final sale price is 10-20% below initial asking price. Why? Because buyers always negotiate, identify risks, and request adjustments.

Hence the value of starting with solid, documented, defensible valuation. It becomes your anchor point in negotiations.

Three methods to set an asking price

Three main approaches exist, each with strengths and limits. Best practice is to cross-reference all three to triangulate a credible range.

1. Asset-based method (adjusted net assets)

Add estimated market value of all company assets (real estate, equipment, inventory, receivables, cash) and subtract liabilities. Result: Asset Value, representing what the company would be worth if liquidated.

• Advantage: simple to calculate, tangible, useful for asset-heavy businesses (real estate, trading, heavy manufacturing).
• Limitation: ignores intangible asset value - expertise, loyal customer base, brand, network, superior processes. A consulting SME might be worth 4x net assets. A small restaurant often equals net assets or less if premises are rented.

Simple formula:

Asset Value = Revalued Assets − Financial Liabilities

2. Multiples method (market comparables)

Apply a sector multiple to a company financial metric - typically EBITDA, sometimes revenue or EBIT. The multiple reflects what comparable buyers paid for similar businesses.

Multiples vary greatly by sector:

• Manufacturing / Trading: 4x-7x EBITDA (depends on size and growth)
• B2B Services (consulting, accounting): 4x-10x EBITDA
• SaaS / Software: 6x-15x EBITDA (or 4x-20x ARR - Annual Recurring Revenue)
• Healthcare (medical practice, pharmacy): 3x-6x EBITDA
• Distribution / Retail: 2x-5x EBITDA

Advantage: quick, well-anchored in current M&A market reality.
Limitation: multiples are averages. An SME heavily dependent on its owner or with high customer concentration should apply a 20-40% discount. Public data on comparables is limited for non-public SMEs.

3. DCF method (Discounted Cash Flow)

Project company cash flows 5-7 years forward, add terminal value representing flows beyond projection horizon, then discount everything at a rate (WACC) reflecting company risk.

Simplified formula:

Value = (FCF Year 1 / (1+WACC)¹) + ... + (TV / (1+WACC)⁵)

Where FCF = Free Cash Flow (cash available after investments) and TV = Terminal Value.

Advantage: most rigorous and precise for SME-specific profile. Accounts for your actual trajectory, not sector average. Preferred by bankers and M&A firms.
Limitation: highly sensitive to assumptions (growth, WACC). A 1% discount rate change can shift value 15-25%. Hence the importance of scenarios (pessimistic, realistic, optimistic).

Triangulation: cross-referencing all three methods

For a sale, cross all three methods to get a credible range. Example for an SME:

• Asset value: €1.5M
• Multiples: 5x EBITDA = €2.5M
• DCF: €2.1M

Range: €1.8M-2.3M. Start buyer search at €2.3-2.4M, knowing final price will likely be around €2.0-2.1M.

Factors influencing final price

Beyond theoretical valuation, several factors drive price up or down in negotiation.

Number of interested buyers

This is factor #1. Two or three serious offers? You can negotiate up. Single buyer? You're in weak position. Brokers and M&A firms structure competitive bidding for this reason - multiple offers drive prices up 10-30%.

Payment terms

Cash at signing = risk premium. If buyer proposes staged payment (seller financing, earn-out) or deferred payment, nominal value is higher but so is your risk (insolvency, future revenue loss).

• Cash at signing: benchmark 100%
• Seller financing (you finance buyer): typically 5-10% discount
• Earn-out (payment conditional on hitting targets): 10-20% discount + risk

Non-compete clause

Stricter clause (geography, duration, scope) = bigger discount you'll accept. 2-year non-compete in your department costs a few points. 5-year national non-compete costs 5-10% of price.

Post-sale support

If you stay 6 months as consultant ensuring transition, buyers pay more. Conversely, immediate departure with no transition triggers 10-20% discount for customer loss and expertise risk.

Representations and warranties insurance (RWI)

If you guarantee assets are sound and no hidden liabilities (old debts, litigation, defaults...), it's a cost to you (RWI insurance or escrow reserve). Longer guarantee = higher cost = lower price.

How to negotiate effectively

Sale negotiation is a process where preparation equals success. Here are golden rules.

1. Have solid, documented valuation

You have DCF valuation, comparables, asset analysis. Present it to buyers confidently. It becomes your anchor - "we had an expert value the company, here are results, so we're at €2.2M floor, €2.6M ceiling per scenarios."

2. Prepare information memo

15-20 page document structuring your business: history, team, key metrics, major clients, strengths, growth strategy. Buyers will examine it line by line. Be honest but emphasize assets.

3. Never accept first offer

Golden rule. Even if offer seems fair. Buyers expect negotiation; accepting immediately makes them wonder if they should have bid less. Counter with higher offer (realistic), justified by arguments.

4. Get professional support

M&A advisor, M&A accountant, tax attorney. Their fees (€3,000-20,000) easily pay for themselves if you get €100k more from negotiation. They know tactics, pitfalls, market prices.

5. Manage emotion

You're selling your "baby" after 20 years. Buyer sees investment. Stay rational. Set acceptable floor, decide in advance if you'll walk away if no one reaches it.

Get an initial estimate

Before incurring advisor costs, get a first-pass valuation to guide you. ValorSME quickly calculates your DCF value with scenarios, giving a reliable range based on your sector and financials.

You can also check our thematic guides understanding how to value by sector:

• Estimating business goodwill: methods and benchmarks 2025-2026
• Selling your business before retirement: complete guide
• Valuing your business before sale

Need a detailed certified analysis? The ValorSME Expert PDF Report provides a complete valuation, sensitivity scenarios, and a professional document to present to your buyer or advisor. It's a modest investment that can prevent you leaving significant value on the table in negotiation.