Business valuation

How this estimate works

This tool gives a quick, indicative range. It is not a formal valuation. It blends the two methods most often used for South African SMEs:

• Earnings multiple: your profit/EBITDA is multiplied by a sector multiple and a risk factor. The sector multiples here (roughly 2.4x to 4.2x) reflect typical owner-managed SME ranges, where asset-backed sectors such as fuel sit higher and owner-dependent service businesses sit lower.
• Turnover floor and asset support: we cross-check against a fraction of turnover (about 18%) so very profitable-looking businesses on thin revenue are not over-valued, and add partial credit (about 35%) for included assets.
• Risk adjustment: strong management raises the range; heavy owner-dependence lowers it.

These factors are simplified rules of thumb for guidance only. Real multiples vary with growth, customer concentration, lease security and deal terms. Confirm any number with a professional valuer, your accountant and proper due diligence before listing, offering or negotiating. See our guide to valuation for more.

A worked example

Picture a suburban bakery with R2m of annual turnover and R400,000 of normalised profit after a market-related owner salary. The owner is involved daily and one supermarket account drives a large share of sales, so this is a higher-risk, owner-dependent business. At a services multiple of 2.4x and a higher-risk factor of 0.85, the earnings value is about R400,000 multiplied by 2.4 multiplied by 0.85, or roughly R816,000. With R150,000 of equipment included, the asset support adds a little over R50,000. The indicative range lands at roughly R750,000 to R1.0m. If the same bakery had a manager running it and a spread of customers, the lower risk would push the multiple and the range higher.

When multiples are higher or lower

The single biggest driver of value is how safe the profit looks to the next owner. Multiples move up for recurring or contracted revenue, steady year-on-year growth, a broad customer base, a management team that runs the business without the owner, clean and verifiable financials, and a long secure lease. Multiples move down for declining turnover, dependence on one or two customers, an owner who personally holds the key relationships, short or uncertain lease terms, and messy books that are hard to verify.

South African specifics

A few local factors sit on top of the maths. A strong B-BBEE level can help a business win and keep corporate or government work, which supports value, while a weak or lapsed level can quietly cost contracts. SARS compliance matters too, since a clean tax record makes a business far easier to finance and transfer. Whether a deal is structured as a share sale or a going-concern asset sale also affects the real cost, because a correctly structured going-concern sale can be VAT zero-rated. None of these show up in a simple multiple, so treat the number above as a starting point, not an answer.

Common valuation mistakes

• Confusing turnover with profit. A big top line on a thin margin is not worth much.
• Using reported profit without a market-related owner salary, which flatters an owner-managed business.
• Accepting every add-back at face value instead of testing whether the cost really was once-off.
• Ignoring lease risk on a location-dependent business with a short remaining term.
• Paying for promised future growth that the current numbers do not yet show.

Want the full method, including how to spot inflated add-backs? Read the step-by-step buyer guide.