Valuing an SME is not simply a matter of applying a multiple. In real-world transactions (whether a sale, investor entry, restructuring, or financing) the valuation rests on three key elements: the multiple, normalised EBITDA, and adjustments. And there is one concept that influences everything: growth creates tension and risk. If that risk is not properly managed, it translates into valuation discounts, tougher deal terms, or, in some cases, a transaction that never moves forward.

1) Value Is Not Price (and Enterprise Value Is Not Equity Value)

In M&A, a distinction is made between:

    • Enterprise Value (EV): the value of the business (its operations).
    • Equity Value: the value of the equity after adjusting for debt and cash.

The typical relationship is: Equity Value = EV – Net Financial Debt (NFD), where NFD = financial debt – cash (with nuances regarding operating cash versus excess cash). A well-prepared value-to-price bridge is not merely technical, but a key negotiating tool.

2) Seller and Investor Do Not Look at the Same Things

The seller’s expectations matter, but they must align with the investor´s return requirements. A valuation is more robust when it is supported by a credible business plan and a well-timed sale process (seasonality of cash flow and working capital matter). Selling when cash balances are low or working capital is under pressure can reduce the price achieved, even if the multiple appears attractive.

3) Multiples Are Only Useful If You Know What You’re Multiplying

In SMEs, the most commonly used multiples are:

    • EV/EBITDA (the primary valuation multiple)
    • EV/Revenue (as support when EBITDA is volatile, or in certain sectors)

A multiple is justified by comparables, the quality of EBITDA (recurrence and margin profile), risk factors (customer concentration, owner dependency, liabilities), and the company's ability to convert EBITDA into cash flow.

If the buyer identifies poorly managed risk, the multiple may be reduced, and the deal is more likely to include earn-outs, holdbacks, and stricter warranty and indemnity provisions.

4) Normalized EBITDA: Where Deals Are Won or Lost

The accounting EBITDA is almost never the figure a buyer relies on. Instead, it is adjusted to reflect the company's recurring operating performance.

Typical adjustments include non-recurring items, shareholder compensation that is above or below market levels, related-party transactions, non-operating expenses, and structural costs that have already been committed.

A well-executed EBITDA normalization exercise often has a greater impact on valuation than simply trying to negotiate a higher multiple.

5) Growth Needs Structure: Corporate Architecture Also Impacts Valuation

As a business grows, risk multiplies (across financing, operations, and employment matters). Managing that risk often requires a more diversified legal structure: separating business lines, isolating operating activities from asset ownership, and designing a structure that can withstand crises or support financing without putting the entire group at risk.

In family-owned businesses or companies with multiple shareholders, a holding company can act as a firewall: It centralises ownership and simplifies governance across the operating entities, reducing the risk of deadlock. From a market perspective, this translates into lower perceived risk, greater investability, and more favourable transaction terms.

6) Adjustments That Affect Price Even When the Multiple Remains Unchanged

In addition to EBITDA and the valuation multiple, the final price often depends on:

  • Net Financial Debt (NFD): debt and cash at completion.
  • Target working capital: if the business is delivered with working capital below the agreed level, a negative price adjustment is typically applied.
  • Non-operating assets: properties and other non-core assets are often separated from the transaction or valued separately, as they can affect both the scope of the deal and the negotiation process.

7) Preparing an SME for Sale Means Preparing Its Valuation

Preparation has two dimensions:

  • Financial expectations: (realistic for both seller and investor)
  • Seller's personal expectations: (quick exit or ongoing involvement)

These considerations influence the structure of the transaction. An industrial buyer will often seek to acquire 100% of the business, whereas a financial investor will frequently acquire a majority stake while retaining the seller as a minority shareholder for a period of time in order to align incentives.

Key takeaway: if you are growing a business or considering a transaction, the greatest increase in value is often achieved by properly normalising EBITDA and organising risk (through the right corporate structure, asset separation, working capital management and governance), rather than by simply negotiating a higher multiple.