The question "how much is my company worth?" has different answers depending on who is asking and for what purpose. A seller evaluating whether to sell now or in three years needs a different answer from an heir who must pay tax on a share donation, or a bank assessing a guarantee. Valuation methods are not neutral tools: each one captures a different view of value and produces different results.
The fundamental principle: value is not price
Before discussing methodologies, it is worth clarifying the difference between value and price. Value is a technical estimate of what a business is worth given its objective characteristics: profitability, growth, risk, competitive position. Price is what a specific buyer pays under specific market conditions. Price may exceed technical value (if a strategic buyer has particular synergies) or fall below it (if the sale process has marketing shortcomings or the seller is under time pressure).
Business valuation establishes a reasoned range that serves as a starting point for negotiation. It is not an immovable figure.
Method 1: EBITDA multiples
This is the most widely used method in SME transactions due to its simplicity and comparability with reference transactions. It involves applying a multiple to the normalised EBITDA of the business.
Enterprise value = adjusted EBITDA × sector multiple
From this enterprise value, net financial debt is deducted and excess cash is added to arrive at equity value.
Reference multiples by sector are obtained from comparable transaction databases (Mergermarket, Capital IQ) or from direct market observation. For Spanish SMEs, the typical ranges are:
- Professional services: 4x–6x EBITDA
- Distribution and trade: 3x–5x
- Software and technology: 6x–10x (or higher, depending on recurring revenue profile)
- Industry: 4x–7x
- Hospitality and restaurants: 3x–5x
The key lies in EBITDA quality: revenue recurrence, customer concentration, owner-dependency, barriers to entry. These factors determine whether the multiple is applied at the high or low end of the range.
Method 2: Discounted cash flow (DCF)
DCF values the company as the present value of the cash flows it will generate in the future, discounted at a rate that reflects the business’s risk. It is the most rigorous method conceptually and the most commonly used in formal valuations for financing, arbitrations, and non-cash contributions.
Enterprise value = Σ discounted future FCF + terminal value
The critical variables are the cash flow projections (quality of the business plan), the discount rate (WACC) and the perpetuity growth rate. Small changes in these variables produce significant differences in value, making DCF more sensitive to assumptions than multiples.
Method 3: Adjusted net asset value
This starts from the accounting net equity and adjusts it to reflect the real market value of assets and liabilities. It is the most appropriate method for companies with significant tangible assets (real estate, industrial, holding companies), but understates the value of businesses based on intangibles (brands, customers, know-how).
When to use each method
| Context | Preferred method |
|---|---|
| Sale of an operating business | EBITDA multiples + DCF as a cross-check |
| Loss-making or early-stage company | DCF or adjusted net asset value |
| Donation or inheritance of shares | Adjusted net asset value (tax-required) |
| Non-cash contribution to a company | Independent expert report (any method) |
| Company with significant real estate assets | Combined: adjusted net assets + yield |
| Acquisition of a competitor | Multiples + synergy valuation |
Common errors in SME valuations
- Confusing accounting EBITDA with normalised EBITDA
- Applying multiples from large listed companies to SMEs (SMEs trade at a 20–40% illiquidity discount)
- Failing to deduct net debt to arrive at equity value
- Overestimating future growth without support from signed contracts or documented trends
- Ignoring off-balance-sheet assets and liabilities (operating leases, guarantees, pension commitments)
How BMC can help
Our valuations team issues valuation reports under IVSC (International Valuation Standards Council) standards and the applicable Valuation Regulations, for company acquisition transactions, succession planning, non-cash contributions and due diligence processes. If you need an independent valuation of your business, contact us for an initial scoping consultation.
Specific regulatory framework
Business valuation in Spain has no single regulation imposing a methodology, but there are reference frameworks that condition the method depending on its purpose:
- Royal Legislative Decree 1/2010 (LSC), art. 353: The determination of fair value of SL shares when exercising a shareholder’s right of separation must be performed by an independent expert appointed by the Commercial Registry, unless the parties agree otherwise. The methodology is not prescribed, but Supreme Court case law validates multiples and DCF methods (STS of 30 September 2020 and 17 February 2022).
- Law 27/2014, CIT, art. 18 (transfer pricing): Transactions between related entities must be valued at market price (arm’s length). For transfers of shares between related parties, the price must match the normal market value, determined by one of the methods in article 18.4 LIS (comparable uncontrolled price, cost-plus, resale price, net margin or profit split).
- Law 35/2006, IRPF, art. 37.1.b): Capital gains from transfers of shares or interests not listed on an exchange are quantified as the greater of: the net asset value, or the amount resulting from capitalising at 20% the average profit of the last three completed financial years. This “tax value” is the floor for IRPF taxation on individuals, even if the transaction was completed at a lower price.
- ICAC Resolution of 18 September 2013: Sets accounting criteria for recording business combinations, including the valuation of intangible assets (brands, customer portfolios, contracts) in the purchase price (Purchase Price Allocation).
- IVSC (International Valuation Standards): International methodological framework used as a reference by expert accountants and economists issuing valuation reports in Spain. It has no statutory status but is the de facto standard in M&A transactions.
The minimum tax value under article 37.1.b) IRPF
This criterion has a direct impact on transactions involving the sale of shares between individuals: if the sale price is below the value calculated under art. 37.1.b), the capital gain is still computed on that minimum value, generating taxation “in the dry” on income the seller has not actually received.
Formula: Tax value = max (net equity × % shareholding; average 3-year profit / 20% × % shareholding)
Practical example: valuation of Instalaciones Navarro, SL for a sale
Scenario: Family SL, industrial installation and maintenance sector, €6.2M revenue, EBITDA 2024: €620,000 (adjusted €580,000 after removing owner personal expenses). No financial debt. Accounting net equity: €1,850,000. Average 3-year profit: €310,000.
| Method | Enterprise value | Equity value (no debt) |
|---|---|---|
| EBITDA multiples (5x installation sector) | €2,900,000 (580,000 × 5) | €2,900,000 |
| EBITDA multiples (6x, high-quality profile) | €3,480,000 | €3,480,000 |
| DCF (5-year projection, WACC 12%, g 2%) | €3,150,000 | €3,150,000 |
| Net asset value (accounting equity) | €1,850,000 | €1,850,000 |
| IRPF tax value art. 37.1.b) | max(1,850,000; 310,000/0.2) = max(1,850,000; 1,550,000) | €1,850,000 |
Negotiation range: €2,900,000 – €3,480,000. Any transaction closed below €1,850,000 would generate phantom taxation in the seller’s IRPF — a costly mistake that is avoided with prior planning.
Common errors BMC corrects
- Calculating adjusted EBITDA without removing the owner-director’s remuneration. Many SME owners pay themselves below market rates to maximise visible EBITDA. Buyers detect this in due diligence and apply an upward adjustment to the replacement cost, reducing the real adjusted EBITDA and the final price.
- Ignoring the minimum tax value under article 37.1.b) IRPF when setting the sale price. Agreeing a price below the minimum tax value in order to “save” on the price still generates taxation on the higher value. There is no saving, and the outcome is a loss for the seller.
- Applying listed company multiples without applying the illiquidity discount. Unlisted SMEs trade at a 20–40% discount compared to comparable listed companies, due to lower liquidity and higher concentration risk. Failing to apply this discount overvalues the company and creates expectations the market will not validate.
- Not documenting adjusted EBITDA before presenting the company to buyers. EBITDA adjustments must be supported by documentation (payroll, invoices, statements) that the buyer can verify. An undocumented adjustment will not be accepted in negotiation and may undermine trust.
- Confusing enterprise value with equity value. Enterprise value includes net debt. If a company has €500,000 in bank loans and is valued at €3,000,000 enterprise value, the seller receives €2,500,000 (equity value), not €3,000,000.
Next steps
- Calculate adjusted EBITDA for the last 3 financial years, removing non-recurring items and adjusting shareholder remuneration to market rates
- Determine current net financial debt (loans + finance leases – available cash) to derive equity value from enterprise value
- Calculate the minimum tax value under article 37.1.b) LIRPF to identify the tax floor before negotiating the price
- Identify sector reference multiples from recent comparable transactions (sources: Mergermarket, CNMV sector reports, PE publications)
- Commission an independent valuation report if the transaction has a tax purpose (donation, inheritance, non-cash contribution) or a judicial purpose (shareholder separation, divorce)
- Review intangible assets (brands, contracts, software) that do not appear on the balance sheet but are relevant value drivers for the buyer
