- Category: The activity
Calculating the value of your French company
Chances are if you’ve got a company, you’ve already asked yourself this question, if only just by curiosity. Well, turns out, the worth of your company can determine quite a few things in France, especially when it comes to transferring your company; so it’s worth paying attention to it.
When does the worth (company value) of your company matter?
In France, you are taxed when you transfer your assets to another person for free, if you want your children to inherit your assets for example. Of course, this applies when transferring a company, and in these cases, the worth of your company will determine how much you are taxed.
Sometimes, insurance companies will also want to know the worth of your company before insuring you, so that they can determine how much compensation you’ll receive as well as how much you will pay. In a similar fashion, the legal representative of a company might also want to know how much his company is worth because that will have an impact on his patrimony.
Of course, it can also be helpful for the strategy of your company. Indeed, if you figure out what makes your company have value, you’ll be able to learn what sort of circumstances might severely weaken the value of your company, or what to change to have a big impact on your company.
How can you determine how much your company is worth?
Of course, if the company is listed, then this is fairly straightforward. However, what if it’s not?
There are 3 main methods of determining the worth of your company:
- The Free Cash flows method: considering that the sum of your cash flows is the worth of your company
- The patrimonial method: evaluating the assets, and deducting the liabilities from them
- The method by comparison: studying other companies in the field to find a suitable indicator. For example, maybe companies in your field have a worth that is 7 times their annual turnover on average.