SME Valuation

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The excel valuation here illustrates the basic steps to the calculation of value for a small and medium business, including:
– the calculation of the discount rate
– the Discounted Cash Flows
– the Market Approach
– The Valuation Summary


Depending on the circumstances and characteristics of the company and transaction, the Cost method can also be used, and different versions of the Income and Market Approach can apply.

Additionally, some transaction-specific features, such as the calculation of synergies, sometimes are added. A Valuation Engagement would also include more advanced methods to calculate the discount rate and the terminal value, among other features.

Prevalent valuation methods can be applied to startups as well, but with a variety of adjustments that are necessary to illustrate the different features.


SME Valuation Valithea Advisory

We calculate the discount rate for SMEs and later-stage companies through the CAPM approach, assessing systematic and unsystematic market risks, beta for the sector, changing debt levels, additional debt risks and additional market risk premiums. In some circumstances, an alternative beta calculation method is used for high-risk companies. The discount rate is adapted to the method chosen to discount the cash flows (WACC, Net method, APV). For early-stage investments, we would use a different approach based on investment returns. The same applies to larger companies and corporations, for which a very detailed Discount Rate and risk assessment takes place.


SME Valuation Valithea Advisory

The Discounted Cash Flow is based on carefully planned projections. The terminal value is extremely important and therefore sustainable figured are calculated based on future market changes, the company’s strategy, potential reinvestments, and a realistic growth rate. Different income methods can be applied here (WACC, Net method, APV), based on the capital structure of the company. Additionally, the valuation would include a detailed analysis of non-operating assets and net debt, as well as bespoke discounting techniques based on the timing of cash flows.


SME Valuation Valithea Advisory

The Market Approach can be applied on current figures based on the foreseeable transaction (prospective exit), or on future figures when the market value of the company can be set as the terminal value (for startups or companies that are not likely to be sold in the near future). This leads to different approaches. When using the market approach, we choose transactions very carefully, using CoTrans (acquisitions), the Guideline Company Method (comparable stock-listed companies) or Equity Financing Transactions, depending on the stage and specific features of the company. When information is available, we also adapt the multiples to the company’s capital structure. Only reliable multiples will be used, as well as non-conventional multiples that are sector-specific, which provide very useful information for early-stage companies.


SME Valuation Valithea Advisory

The Valuation Summary provides a quick overview of the methods used, and the main valuation inputs and outputs. When the company generates revenue, the income approach (DCF) is the preferred method used, while the market method will be used as comparison, but we ensure that both results are consistent with the company’s strategy. The cost method or other startup-related methods will be used for different types of companies.


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