Company valuation before a succession: a primer

Before you decide anything about your succession, you need a rough idea of what your company is worth. Not a polished number, just an honest baseline. That figure quietly shapes every option in front of you: whether a family transfer is realistic, whether a sale funds your retirement, how long the preparation will take. Get the baseline early, even if it stings, and you negotiate from knowledge instead of hope.

Why an early value baseline matters

A value baseline is a planning tool, not a price tag. The number you reach today is less important than what it tells you to do next.

If the figure is lower than you hoped, you have time to lift it. If it is higher, you can plan the tax and financing structure with room to breathe. Either way, an early estimate sets a realistic timeline. Owners who skip this step often discover, far too late, that their expectation and the market sit far apart, and by then the pressure to close leaves no time to fix anything.

Treat the first estimate as a draft. You will revisit it as the company changes and as you get closer to a transfer.

How value is estimated, at a glance

There is no single formula. In practice, advisers look at a company through a few complementary lenses, then triangulate.

• Net asset (book) value looks at what the company owns minus what it owes. It is a floor more than a verdict, and it tends to undervalue a profitable, well run business whose worth lies in earnings rather than assets.
• Earnings multiples apply a factor to a normalised profit measure, often EBITDA. The multiple reflects sector, growth, stability and risk. This is the most common lens for a healthy SME.
• Discounted future cash flows project the cash the business should generate over coming years and bring it back to today's value. It rewards visibility and predictable income, and it punishes uncertainty.

Each method answers a slightly different question, which is why a serious estimate cross checks them rather than trusting one.

Value sits in a range, not a single number

This is the point owners find hardest to accept. A company is not worth one exact figure. It is worth a range, and where you land inside that range depends on the buyer, the moment, the terms and the story the numbers tell.

The same company can be worth meaningfully more to a strategic buyer next door than to a financial buyer two cantons away.

A wide range is itself information. A narrow, defensible range signals a business that is legible and low risk. A wide one usually means the numbers are noisy, the future is uncertain, or too much depends on the owner. Tightening that range is work you can do before anyone makes an offer.

The drivers you can actually improve

A buyer is not really buying last year's profit. They are buying confidence that the profit continues after you leave. Several levers move that confidence, and most are within your control:

• Recurring revenue. Contracts, retainers and repeat customers are worth more than one off project income, because they are easier to forecast.
• A diversified customer base. If one client represents a large share of turnover, every buyer sees a cliff edge. Spreading the risk raises the floor.
• A real management team. A company that runs without daily founder input is far more transferable than one held together by a single person.
• Clean numbers. Clear, consistent, well documented accounts let a buyer trust what they see. Surprises during due diligence cost real value.
• Low owner dependency. The single biggest driver, and the hardest to fake. If the relationships, the know how and the decisions all live with you, the business is harder to hand over.

You will not move all of these in a quarter. But two or three years of deliberate work on even a few of them can shift you up the range.

Why a buyer discounts risk

It helps to see the company through the buyer's eyes. A buyer is pricing risk, and anything uncertain gets discounted.

Owner dependency is the clearest example. If the business needs you, the buyer is not acquiring a company so much as a job that happens to come with one, and they will pay less to reflect the chance that revenue walks out with you. The same logic applies to a single dominant customer, thin documentation, or earnings that swing year to year. Every question a buyer cannot answer comfortably becomes a margin of safety they subtract from the price. Reducing those open questions before a sale is among the highest return work an owner can do.

What it is worth to you, versus the market

Finally, separate two values that often get confused.

There is the emotional value, what the company is worth to you after decades of building it: the late nights, the risk, the identity. That value is real, and nobody can take it from you. But it does not transfer. A buyer pays for market value, the transferable, future facing worth of the business to someone who did not build it.

Holding both truths at once is the mark of a prepared owner. You honour what you built, and you price what you are selling. None of the above is a formal valuation. It is a way to think clearly before you commission one and before you talk to anyone.

If you want to see where your company stands across the drivers that move value, our succession diagnosis maps it across ten readiness dimensions in one structured session and returns a prioritised plan.