Valuing a target: evaluation methods for buyers
Introduction
The seller announces a price. You need to know if it's justified. Calculating your own valuation gives you the factual arguments to negotiate confidently, without relying solely on the seller's figures.
Many buyers enter negotiations without having done their own calculations. Result: they accept an inflated price or miss an opportunity due to lack of method. Mastering evaluation techniques positions you as a serious and prepared buyer.
This guide details 4 valuation methods tailored for SME buyers in Switzerland: EBITDA multiples, Swiss practitioners' method, discounted cash flows (DCF) and asset-based method. You'll learn to apply them practically, cross-reference results to obtain a realistic range, and use your valuation in negotiations.
Whether you're acquiring your first business or looking to expand your portfolio, these tools will help you structure your offer and defend your position against the seller.
📌 Summary (TL;DR)
Calculating your own valuation before buying allows you to negotiate with factual arguments. The 4 main methods (EBITDA multiples, Swiss practitioners, DCF, asset-based) complement each other to establish a realistic range. Cross-reference results, adjust according to target specifics, and use your valuation to structure a solid and defensible offer in negotiation.
📚 Table of contents
Why calculate your own valuation as a buyer
The price requested by the seller is only a starting point. As a buyer, you must establish your own independent business acquisition valuation to avoid overpaying.
A solid valuation allows you to identify gaps with the advertised price and prepare factual arguments for negotiation. It also reveals hidden risks and opportunities for price adjustments.
Valuation is not an exact science. It's a negotiation tool that positions you as an informed and credible buyer. Without this foundation, you're negotiating blind.
Your calculation becomes the foundation of your acquisition strategy. It structures your discussions and helps you define your maximum acceptable price. Discover how to use it in our guide on negotiation tactics for buyers.
The 4 valuation methods for buyers
Four main approaches allow you to calculate the value of a target business. Each offers a different angle and presents its strengths and limitations.
The EBITDA multiples method remains the most widely used in Switzerland for SMEs. The Swiss practitioners' method combines assets and returns. DCF projects future flows. The asset-based method focuses on net assets.
No single method is perfect on its own. The objective is to cross-reference the four results to obtain a realistic range that will guide your offer.
Mastering these buyer valuation methods gives you a decisive advantage against the seller. You speak the same language as experts and demonstrate your credibility.
1. EBITDA multiples method
The formula is simple: Value = EBITDA × Sector multiple. It's the most widespread method for Swiss SMEs.
The multiple varies by sector. Retail: 3-4x. Technology and IT services: 5-7x. Manufacturing: 4-6x. Professional services: 3-5x.
Adjust the multiple according to size, growth and specific risks. An SME with less than 1M CHF EBITDA will have a multiple below the sector range.
Concrete example: EBITDA of 200,000 CHF in retail. Sector multiple: 3.5x. Estimated value: 700,000 CHF. If the business shows strong customer dependency, reduce to 3x: 600,000 CHF.
This method is quick and comparable. It reflects what the market actually pays. Consult our guide on valuation methods to go deeper.
2. Swiss practitioners' method
Recognised formula in Switzerland: (2 × Substantive value + Earnings value) ÷ 3. It combines assets and profitability.
The substantive value corresponds to adjusted net assets (real assets minus debts, with market adjustments). The earnings value capitalises normalised profit according to a rate of 12-20% depending on risk.
Example: Adjusted net assets: 500,000 CHF. Normalised profit: 120,000 CHF. Capitalisation rate: 15%. Earnings value: 120,000 ÷ 0.15 = 800,000 CHF. Final calculation: (2 × 500,000 + 800,000) ÷ 3 = 600,000 CHF.
This method is balanced and recognised by Swiss fiduciaries. It avoids extremes and offers a solid foundation for negotiation.
3. Discounted cash flow method (DCF)
DCF values the business according to its discounted future flows: Value = Σ (Future cash flows) / (1+WACC)^n.
Steps: project free cash flows over 5 years, determine the discount rate (typical WACC: 8-15%), calculate terminal value for subsequent years, discount everything.
Simplified example: Projected cash flows of 100K, 110K, 120K, 130K, 140K CHF. WACC: 10%. Terminal value: 140K × 10 = 1.4M CHF. Discounted sum: approximately 1.1M CHF.
This method suits growing businesses with reliable forecasts. It's sensitive to assumptions: a WACC of 12% instead of 10% reduces value by 15-20%.
Complex but precise, it usefully complements other approaches.
4. Asset-based method (adjusted net assets)
Formula: Assets - Liabilities, with adjustments to market values. It prioritises what the business owns.
Useful for businesses with significant tangible assets: real estate, inventory, equipment, vehicles. Less relevant for services or intangible activities.
Necessary adjustments: revaluation of real estate at market price, depreciation of obsolete inventory, exclusion of non-operating assets (personal investments), updating doubtful receivables.
Example: Book assets: 800,000 CHF. Liabilities: 300,000 CHF. Book net assets: 500,000 CHF. After real estate revaluation (+150K) and inventory depreciation (-50K): 600,000 CHF.
This method establishes a value floor. It reassures about asset strength but ignores future profitability.
Cross-referencing methods to obtain a range
Never rely on a single method. Each illuminates a different aspect of value. Cross-referencing reveals the realistic range.
Concrete example: EBITDA multiples: 800,000 CHF. Swiss practitioners: 750,000 CHF. DCF: 900,000 CHF. Asset-based: 700,000 CHF. Final range: 750,000-850,000 CHF.
If one result deviates significantly, analyse why. A very high DCF may reflect optimistic assumptions. A low asset-based value signals poor return on assets.
This range becomes your negotiation foundation. It allows you to justify your offer with multiple analytical angles. Use it with our rapid evaluation grid to refine your decision.
Specific adjustments to consider
The gross valuation must be refined with adjustments that reflect risks and anomalies identified during your analysis.
Owner's salary adjustment: If the owner pays themselves 80,000 CHF whilst the market requires 120,000 CHF, reduce profit by 40,000 CHF and recalculate.
Non-recurring expenses: Litigation, exceptional repairs, restructuring costs. Normalise the result by excluding them or integrating them according to their likely recurrence.
Deferred investments: Ageing equipment, obsolete IT system, premises requiring renovation. Estimate costs (50-200K CHF) and deduct from value.
Customer/supplier dependency: A customer representing >30% of turnover justifies a 10-15% reduction. A single supplier: 5-10%.
Each adjustment becomes a documented and defensible negotiation argument.
Using your valuation in negotiation
Your buyer valuation is not a weapon but a dialogue tool. Present it constructively to move towards an agreement.
Document each assumption: sector multiples, discount rate, adjustments. Transparency strengthens your credibility and facilitates discussion.
Don't impose your figure. Rather explain the gaps with the asking price: "Here's how I arrive at 750K CHF whilst you're asking 900K. Let's discuss the assumptions."
Prepare scenarios: optimistic (850K), realistic (750K), pessimistic (650K). This approach shows your flexibility whilst maintaining a factual foundation.
Valuation opens negotiation, it doesn't close it. Consult our guide on negotiation tactics to go deeper.
When to call on an expert
Certain situations justify external expertise to validate or refine your SME value calculation.
Transactions >2M CHF: The financial stakes merit professional validation. Complex structures: Holdings, multiple subsidiaries, international assets. Difficult-to-value assets: Patents, trademarks, commercial real estate. Significant disagreement: Gap >30% with seller.
Experts from the Leez network (fiduciaries, certified valuers) can perform an independent valuation. Typical cost: 2,000-5,000 CHF depending on complexity.
This investment is often recouped through better negotiation. An expert report strengthens your position and accelerates conclusion.
For standard cases (<1M CHF, simple structure), your own calculations generally suffice. Use our valuation tool for an initial estimate.
Calculating your own valuation before entering negotiation gives you a strategic advantage. The four methods presented—EBITDA multiples, Swiss practitioners' method, DCF and asset-based—each offer a different analytical angle. By cross-referencing them, you obtain a realistic range that reflects financial value, growth prospects and Swiss market specifics.
This estimate doesn't replace the seller's asking price, but it allows you to quickly identify overvalued opportunities and structure a coherent offer. Specific adjustments (customer dependency, asset quality, operational risks) refine your analysis and strengthen your negotiation arguments.
For complex or strategic cases, support from a valuation expert remains recommended. Explore businesses available on Leez and apply these methods to identify opportunities that match your criteria. If you require professional support, our network of experts is at your disposal.
