Business Valuation for Mid-Sized Companies:
Methods, Adjustments and Value Drivers at a Glance

A business valuation answers the question of what a company will bring its owner economically in the future. For owners of mid-sized companies (the German Mittelstand), it is the basis of every sale or succession decision. Demand is growing: according to KfW Research, around 545,000 mid-sized companies are planning a succession by the end of 2029, and 42 percent of them are considering a sale to external parties. This overview explains methods, adjustments and value drivers.

Which business valuation methods are there?

Four groups of methods are used for mid-sized companies: the capitalised earnings method, the DCF method, multiples methods and the net asset value method. For tax purposes, there is also the simplified capitalised earnings method under the German Valuation Act (Bewertungsgesetz, BewG).

Capitalised earnings and DCF are present value methods. They discount future earnings or cash surpluses at a risk-adjusted rate. The authoritative framework in Germany is the standard IDW S 1 of the Institute of Public Auditors in Germany (IDW). On 8 April 2026, the IDW published a revised version that replaces the 2008 version. You can read how the derivation works in detail in the article on the capitalised earnings method.

For the capitalisation rate, valuers rely on the recommendations of the IDW’s Expert Committee for Business Valuation (FAUB). According to KPMG, in September 2025 the FAUB lowered its recommendation for the market risk premium before personal taxes to 5.25 to 6.75 percent, from 6 to 8 percent previously.

Multiples derive the value from the prices of comparable transactions, usually as a multiple of adjusted EBITDA or EBIT. How these factors arise and where their limits lie is explained in the article on EBITDA multiples.

When does a company need a valuation?

You need a valuation whenever shares change owner or claims have to be measured. The occasion determines the method, the depth and the appropriate valuer.

If you are planning a business succession, an early valuation pays off. According to the DIHK Business Succession Report 2025, 38 percent of owners start planning too late, often only one to two years before their desired exit.

What is the difference between value and price?

Value is a calculated result, price is a negotiated one. A valuation provides a reasoned range. The actual purchase price additionally depends on the type of buyer, synergies, competition among bidders, financeability and contract clauses such as an earn-out or warranties.

Expectations and the market often diverge. According to the DIHK Report 2025, 36 percent of owners handing over their business have excessive purchase price expectations. According to the KfW Succession Monitor 2025, price expectations have risen by around 34 percent in nominal terms since 2019. How value and negotiation turn into a price is described in the article on purchase price negotiation.

What is the simplified capitalised earnings method under the BewG?

The simplified capitalised earnings method (vereinfachtes Ertragswertverfahren) is a German tax method for inheritance and gift tax. Under § 201 BewG, the average of the operating results of the last three financial years is calculated. § 202 (3) BewG reduces a positive result by a flat 30 percent for income taxes. Under § 203 BewG, the capitalisation factor is fixed at 13.75. This corresponds to a capitalisation rate of around 7.3 percent.

Under § 11 (2) BewG, net asset value applies as the floor. In addition, priority is to be given to the method that an acquirer would use as the basis for measuring the purchase price. Under § 199 BewG, the simplified method may only be applied if it does not lead to obviously incorrect results. In practice, a lower value can be substantiated by an expert opinion.

Worked example

The following figures are a simplified example and not industry values.

• Adjusted operating results: €900,000, €1,000,000 and €1,100,000
• Average: €1,000,000
• Less 30 percent income taxes: €700,000
• Times factor 13.75: €9,625,000 tax value

A buyer calculates differently. Suppose the same company has adjusted EBITDA of €1,400,000 and buyers in this example pay 5 to 6 times that. This results in an enterprise value of €7.0 to 8.4 million before deduction of net financial debt. Here, the tax value is therefore well above the market value. You will find a step-by-step guide in the article Calculating business value.

Note: This article does not replace tax or legal advice. Have tax values checked in each individual case by your tax advisor or auditor.

Which adjustments are needed before a valuation?

Before any valuation, the result is adjusted for items that a buyer would not take over in that form. The aim is the sustainably achievable result. § 202 BewG expressly lists these corrections for tax purposes, and the same logic applies in the sale process.

An example shows the leverage: if the market-rate owner’s salary is €100,000 above the salary paid so far, adjusted EBITDA falls by this amount. With an assumed multiple of 5, this reduces the enterprise value by €500,000.

Which factors increase or reduce business value?

The value of a mid-sized company is determined above all by how secure and transferable its earnings are. The IDW Practice Note 1/2014 on the valuation of small and medium-sized enterprises therefore puts transferable earning power at the centre. Earnings that depend on the owner melt away after a change of ownership.

Owner dependency and customer concentration are the most common reasons for discounts in mid-sized companies. Buyers respond with lower multiples, earn-outs or long transition phases.

Who prepares a business valuation?

Auditors, M&A advisors and tax advisors value companies, but for different purposes. The choice depends on the occasion.

• Auditors prepare formal expert opinions under IDW S 1. These are common for settlement payments, disputes or before courts.
• M&A advisors value from the market’s perspective. They know buyer groups, transaction multiples and room for negotiation.
• Tax advisors often value for inheritance and gift purposes and provide an initial orientation based on the financial statements.

In a sale, the roles complement each other: the tax advisor prepares the figures, and the M&A advisor estimates the achievable price.

What does a business valuation cost and how long does it take?

Costs and duration depend on the purpose, the size and the quality of the documents. There is no fixed fee schedule; billing is usually based on time spent or a flat fee.

An initial value indication based on existing annual financial statements and a rough plan is often possible within a few days. A full expert opinion under IDW S 1 with integrated planning, analysis and documentation usually takes several weeks and is correspondingly more expensive.

Which mistakes should you avoid in a business valuation?

Most mistakes arise from wrong reference figures and missing adjustments. These seven are particularly common:

1. Treating the tax value as the market price. The value under the BewG is not a sale price.
2. Using revenue multiples. Buyers pay for earnings, not revenue.
3. Not adjusting the owner’s salary. This overstates earning power.
4. Extrapolating the past. What is valued is the future, supported by a plausible plan.
5. Confusing enterprise value and equity value. Net financial debt is deducted from enterprise value.
6. Ignoring owner dependency. It often reduces value more than a weak balance sheet.
7. Valuing too late. Value drivers can only be improved with lead time.

How do you take the next step as an owner?

The most sensible next step is a realistic value indication based on your adjusted figures. It shows where your company stands today and which levers can still increase its value before a sale.

If you are considering a sale, the article Selling a business gives you the complete overview. For an initial assessment of your situation, we offer a confidential introductory meeting.