Business valuations – When will you need one

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Are you looking for investors to jump on board to propel your business in a new direction? Do you want to sell your business to take on a new adventure? Perhaps you are busy with succession planning for your business due to possible retirement or estate duty purposes. Or maybe you are part of a significant business restructuring to streamline and expand operations?

Chances are highly likely that you will need to determine the value of your business.

A business valuation is a process where a value is placed on a business, or a business unit, based on the business’s historical and expected financial performance.

It is critical for a shareholder or business owner to know what their business is worth when making business decisions and to maintain business strategy. These decisions can include-

  • the evaluation or negotiation on a possible sale of the business, or a portion thereof,
  • planning on restructuring the business by merging into an existing business or
  • acquiring another business

Furthermore, section 114 of the Companies Act, No. 71 of 2008, requires that an independent expert report be obtained when certain transactions are proposed, such as the repurchase of more than 5% of a particular class of issued shares. The report must determine the fairness and reasonability of the consideration on offer in respect of the proposed transaction and requires that a business valuation should be performed to determine whether the value of consideration on offer for the transaction is appropriate

A business valuation will also help when negotiating with potential investors and financial institutions to raise capital. Business worth is also vital for individuals with a direct interest in such businesses to do proper estate planning or in the unfortunate event of marital dissolution.

The valuation of a business unit is a complex affair, and different methods can be used to value a business. Depending on the size, nature and its’ assets and industry information available for the business, the following are some of the methods that can be used by professionals to value a business:

  1. Discounted Cashflow method – The discounted cashflow method is a complex valuation method. It is widely used by valuation professionals where reliable accounting records are available, especially in the SME environment where limited information for private companies is publicly available.


  1. Earnings multiple method – Although the earnings multiple is an excellent method to use when comparative industry information is available, it remains challenging to gather reliable financial information on businesses which is private companies and operates in the same industries.


  1. Net asset value – This method is used for companies with high asset values, which hold their assets for capital appreciation. It is important to remember that it can be costly to appoint an independent valuer to revalue the underlying assets, like property, that may be recorded at cost to represent their respective market-related values.


You will likely find a need or be required to place a value on your business at some point. Leave the complexity of the valuation methods and calculations in the trusty hand of a professional, and do not try to figure it out on your own. We at ASL can advise and guide you on your business decisions to maintain business strategy. By conducting a valuation on your business, we will ensure that the value placed on yours is a true reflection of its worth.

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