Properly Valuing and Selling Craft Businesses

Valuing and Selling Craft Businesses Correctly
Learn everything about valuing craft businesses and how to sell them successfully.

The valuation and sale of a craft business present unique challenges. Unlike other business types, specific factors such as licenses, customer base, and personal expertise play a decisive role here. This guide offers craft entrepreneurs concrete assistance for a successful and value-optimizing business transfer.

Why Is Valuing Craft Businesses Particularly Complex?

Valuing a craft business differs significantly from valuing other types of companies. The value is determined by a variety of specific factors that go beyond pure financial metrics.

In crafts, the personal customer base, the owner’s specialized know-how, and existing licenses often have a greater impact on value than just machinery and equipment. Accurately capturing and valuing these intangible assets presents a particular challenge.

Additionally, craft businesses are often owner-managed, meaning profits are influenced by the managing director’s salary. A realistic valuation therefore requires adjusting the figures for personal withdrawals and a notional managing director’s salary.

Learn more about the special characteristics of craft businesses in our specialized guide on business succession in crafts.

Which Valuation Methods Are Suitable for Craft Businesses?

Various methods can be used to value craft businesses, each considering different aspects of the company’s worth:

1. Modified Income Approach

The modified income approach is particularly suitable for craft businesses and is based on sustainable earnings. It takes into account the company’s future viability and allows for an appropriate valuation of intangible assets.

The calculation is carried out in several steps:

Determining the average EBIT of the last 3-5 years
Adjusting for extraordinary income and expenses
Deducting a market-standard managing director’s salary
Multiplying by an industry-typical factor (usually between 3 and 6)

The multiplier varies depending on the industry, future prospects, and intangible assets such as the customer base and market position. For example, an established plumbing business with long-term maintenance contracts can achieve a higher multiplier than a painter’s business heavily dependent on the owner.

Further information on applying the income approach can be found in our article Calculating Company Value: Income Approach, Multiplier, Asset Value.

2. Asset-Based Approach

The asset-based approach determines the value of the operating assets minus liabilities. It is especially suitable for asset-intensive craft businesses with high fixed assets, such as metalworking or carpentry companies.

Considered are:

Machinery and technical equipment at current values
Operating and business equipment
Vehicle fleet
Inventory and materials
Land and buildings (if part of operating assets)
Minus all liabilities

A realistic valuation of assets often requires the involvement of experts, especially for specialized machinery and equipment.

Learn more about valuing fixed assets in our comprehensive guide.

3. Multiplier Method

Due to its simplicity and practical relevance, the multiplier method is widely used in crafts. It is based on multiplying a relevant financial metric by an industry-standard factor.

Typical multipliers in crafts are:

3-5x adjusted EBIT for established businesses with a broad customer base
0.5-1x annual revenue for high-revenue, low-margin businesses
2-4x adjusted EBIT for specialized craft businesses with niche positions

EBITDA multipliers vary significantly by craft sector. While an electrical business with innovative smart-home solutions can achieve factors of 5-6, a traditional painting business often only reaches 3-4.

Detailed information on industry-specific multipliers can be found in our article on EBITDA Multipliers.

Which Factors Particularly Influence the Value of a Craft Business?

The value of a craft business is influenced by various factors that go far beyond pure financial figures:

1. Licenses and Qualifications

For many craft businesses, special licenses and master craftsman qualifications are key value drivers. Especially in licensed trades such as electrical engineering, plumbing-heating-air conditioning, or automotive sectors, the transferability of necessary qualifications is a decisive aspect.

If a potential buyer lacks the required qualification, they must factor in additional costs for a qualified operations manager, which reduces the purchase price accordingly. Alternatively, the operations manager model can serve as a transitional solution.

Learn more about the special requirements for licensed businesses on our page Selling a Craft Business with a License.

2. Customer Base and Recurring Orders

A stable, diversified customer base with regular orders is a significant value driver. Long-term maintenance and service contracts are particularly valuable, as they provide the successor with predictable income.

Valuing the customer base should consider the following:

Number and diversification of customers
Duration and loyalty of customer relationships
Proportion of long-term service and maintenance contracts
Dependence on individual major customers
Transferability of customer relationships

A plumbing business with 200 private customers and 50 maintenance contracts for heating systems will generally be valued higher than a comparable business that mainly handles one-off jobs without follow-up business.

3. Employee Structure and Know-How

The team is a crucial value driver, especially in crafts where qualified skilled workers are scarce. A stable, well-trained team with low turnover significantly increases company value.

Value-enhancing factors include:

Qualification level of employees (masters, technicians, journeymen)
Age structure and length of service
Documented technical and process knowledge
Loyalty and willingness to stay under new management

To secure know-how, structured knowledge management is essential, especially if the departing owner possesses important, undocumented specialized knowledge.

4. Future Viability and Degree of Digitalization

Forward-looking craft businesses with modern equipment and digital processes achieve significantly higher valuations. Investments in digitalization pay off multiple times in company valuation.

Value-enhancing measures in digitalization include:

Digital order processing and documentation
Modern customer management systems (CRM)
Digital inventory management and ordering processes
Online presence and digital customer acquisition
Use of modern technologies in service delivery

An electrical craft business already using digital measurement tools, online appointment scheduling, and a modern CRM system will be valued significantly higher than a comparable business with paper-based processes.

Learn more about this topic in our article Digital Transformation as a Value Driver Before Selling a Business.

5. Operating Equipment and Location

The quality and condition of operating equipment as well as the attractiveness of the location significantly influence company value:

Modernity and maintenance status of machinery and equipment
Age and condition of the vehicle fleet
Location, condition, and facilities of business premises
Ownership vs. rental of real estate
Regional market position and competitive situation

Especially in technical crafts such as metalworking or carpentry, the value of machinery and equipment can constitute a substantial part of the total value.

How Do I Prepare My Craft Business Optimally for Sale?

Proper preparation can significantly increase the sale value of a craft business. The following measures have proven effective in practice:

1. Timely Planning and Value Enhancement

Successful succession begins with long-term planning, ideally 3-5 years before the planned sale. This time should be used for targeted value-enhancing measures.

Concrete value-enhancing measures:

Building a second management level to reduce owner dependency
Consolidating and optimizing the customer base
Digitalizing business processes
Establishing recurring revenue streams (maintenance contracts, service subscriptions)
Cleaning up legacy issues in balance sheets and order backlog

These measures should be documented in a concrete timeline with milestones. More information on long-term planning can be found in our article on Long-Term Planning of Business Succession.

2. Documentation and Preparation of Financial Data

Transparent, comprehensible financial data are essential for a successful sales process. The following aspects should be considered:

Clear separation of business and private expenses
Adjustment of financial statements for extraordinary items
Documentation of a market-standard managing director’s salary
Listing of fixed assets with current values
Transparent presentation of order situation and capacity utilization

Particularly important is the creation of a "Financial Fact Book" that contains the adjusted earnings situation of the last 3-5 years as well as a realistic future forecast.

Our checklist for Plausibility Check of Seller Information offers valuable tips for preparing convincing company figures.

3. Reducing Owner Dependency

Excessive dependence on the owner significantly reduces company value. The following measures help reduce this dependency:

Delegating customer relationships to employees
Documenting processes and know-how
Building a second management level
Systematizing acquisition and sales processes
Introducing standardized quality processes

A structured process for knowledge transfer from the owner to the team or successor is particularly important. We offer specialized consulting on Documentation and Process Optimization.

4. Solutions for Licensing Challenges

For licensed craft businesses, solutions for transferring necessary qualifications should be developed early:

Identifying potential operations managers from the existing team
Agreements with external masters as transitional solutions
Examining exceptions under § 8 HwO
Early involvement of the Chamber of Crafts

This topic is especially relevant for specialized craft businesses. Further information on possible solutions can be found on our page Selling a Craft Business Without a License.

5. Creating a Convincing Sales Prospectus

A professional sales prospectus is crucial for a successful sales process. It should highlight the unique selling points and strengths of the business:

Clear presentation of the business model and competitive position
Preparation of adjusted financial figures from recent years
Presentation of the customer base and reference projects
Overview of personnel, qualifications, and operating equipment
Presentation of growth potential and synergy effects

Professional design of the prospectus convinces potential buyers and justifies a higher sale price. More on this in our guide Selling a Business: Creating a Sales Prospectus.

Which Sales Channels Are Particularly Suitable for Craft Businesses?

When choosing the right sales channel, craft entrepreneurs should consider various options:

1. Internal Succession by Employees

Passing the business to a long-standing employee or manager is particularly common in crafts and offers numerous advantages:

The successor knows the business, customers, and employees
Professional qualifications and know-how are already present
Continuity for customers and team is ensured
Often higher success rates than external takeovers

Potential candidates should be identified early and systematically developed. Special financing models such as Management Buy-Out (MBO) or Employee Participation can help overcome financing hurdles.

2. Sale to Strategic Buyers

Selling to a strategic buyer, such as a larger craft business from the same or a complementary sector, often offers attractive sale prices:

Synergy effects enable higher valuation multiples
Professional qualifications are usually present
Access to a larger market and resources
Growth potential for employees

Systematic identification of potential strategic buyers requires thorough market and competitive analysis. Specialized M&A advisors with relevant networks can provide support.

3. External Succession by Start-Ups

Selling to an external start-up or career changer is another option, especially for smaller craft businesses:

New impulses and perspectives for the business
High motivation and commitment of the successor
Often more flexible transition models possible
Broad base of potential interested parties

Intensive onboarding of the successor is particularly important in this case. Specialized platforms like viaductus offer the opportunity to specifically search for interested parties with or without licenses.

4. Specialized Business Sales Platforms

Using specialized business sales platforms focused on craft businesses is often the most efficient way:

Targeted approach to potential buyers
High confidentiality during the sales process
Professional support throughout the entire sales process
Access to a larger pool of qualified interested parties

Platforms that allow specific filtering by industry and qualifications are especially effective. On viaductus, for example, interested parties can specifically filter for craft businesses with or without license requirements.

Further information on different sales channels can be found in our article Selling a Business – Where to Advertise?.

How Do I Design the Transfer Process Optimally?

A structured transfer process ensures the long-term success of succession:

1. Preparing and Supporting Due Diligence

The due diligence phase is crucial for the successful completion of the sales process. Good preparation includes:

Creating a structured data room with all relevant documents
Complete documentation of all contracts, permits, and licenses
Transparent presentation of risks and legacy issues
Professional support by specialized advisors

Thorough preparation shortens the process and builds trust with the buyer. Details on required documents can be found in our Due Diligence Checklists.

2. Contract Design and Purchase Price Structure

The following aspects should be particularly considered in contract design:

Clear definition of the purchase object (asset deal vs. share deal)
Appropriate warranties and guarantees
Regulations on transferring licenses and permits
Non-compete clauses for the seller
Structure of purchase price payment

Earn-out arrangements and seller financing are popular in crafts, as they facilitate financing and fairly distribute risks. More on this topic is available in our article on Earn-Out Arrangements.

3. Onboarding and Knowledge Transfer

A structured knowledge transfer is essential for a successful business takeover:

Creating a detailed onboarding plan
Joint customer visits and project handovers
Documentation of processes and workflows
Gradual transfer of responsibilities
Introduction to key business partners and suppliers

Depending on the complexity of the business, a transition period of 3-12 months should be planned. Further tips can be found in our article The First 100 Days After the Takeover.

4. Employee Communication and Involvement

Early and open communication with the team is crucial for a successful takeover:

Transparent information about the sales process
Clearly outlining future prospects
Involving key employees in the transfer process
Considering the emotional aspects of ownership change

A well-thought-out communication concept reduces uncertainties and secures employee loyalty. More on this in our article Successfully Involving Employees After a Business Takeover.

5. Tax Optimization

A tax-optimized sale structure can bring significant financial benefits:

Checking eligibility for exemptions under § 16 EStG
Optimal structuring as asset or share deal
Structuring of business splits before the sale
Reviewing provisions and hidden reserves

Early involvement of a specialized tax advisor is indispensable. Detailed information is available in our article Business Sale – Which Taxes Apply.

Conclusion: Success Factors for Selling a Craft Business

The successful sale of a craft business is based on several key factors:

Long-Term Planning: Start preparing at least 3-5 years before the planned sale and systematically implement value-enhancing measures.
Realistic Valuation: Choose an appropriate valuation method considering the specific characteristics of your craft business and carefully adjust financial figures.
Reducing Owner Dependency: Build a second management level, document processes and know-how, and delegate customer relationships.
Professional Sales Documents: Create a convincing sales prospectus highlighting your business’s strengths and unique selling points.
Solutions for Licensing Issues: Develop concepts early for transferring necessary qualifications and licenses.
Structured Transfer Process: Allow sufficient time for onboarding the successor and systematic knowledge transfer.
Professional Support: Engage specialized advisors for legal, tax, and valuation matters.

With these success factors in mind, nothing stands in the way of a value-optimizing sale of your craft business. Early entry into sales planning and consistent implementation of value-enhancing measures pay off in a higher sale price and a smoother transition.