How to value a business in South Africa: methods, risk and the real price

What a buyer is paying for

A buyer of a trading business is buying a stream of future profit, and paying today for the risk of not getting it. Every valuation method is a way of estimating that profit and pricing that risk. The International Valuation Standards group the methods into three approaches: the market approach (what comparable businesses sell for), the income approach (what the future cash flows are worth today) and the cost or asset approach (what the assets are worth). A careful valuation often uses more than one and explains why the answers differ.

Two questions come before any number:

• The business or the shares? In a sale of the business as a going concern, the buyer takes the operations and the assets needed to run them, and most of the seller's debts stay with the seller, with two exceptions to check. Obligations to the staff who transfer pass to the buyer (Labour Relations Act section 197, explained below). And if a trader sells a business outside the ordinary course without first advertising the sale in the Government Gazette and in two issues each of an Afrikaans and an English newspaper, 30 to 60 days before transfer, the sale is void against the seller's creditors for six months (Insolvency Act section 34). Your attorney checks both. In a share sale, the buyer buys the company with everything in it, so the price for the shares is broadly the value of the business less its debt, plus any surplus cash. See selling a business as a going concern.
• Which currency? The accounts, rent and payroll are in rand (ZAR, the South African currency). A buyer in London, Dubai or Shanghai also prices the exchange rate over the years they own the business, a risk a local buyer does not carry.

Normalise the earnings first

The financial statements of an owner-run business are usually prepared to manage tax, not to sell. Before any method is applied, the profit is normalised to what a new owner would earn running the business as it stands. The usual adjustments:

• the owner's pay replaced with a market salary for a manager doing the same job;
• personal costs run through the business, such as private vehicles, travel or family members on the payroll who do not work in it, added back;
• once-off income and costs removed: an insurance payout, a legal dispute, a move to new premises;
• rent paid to a property company the owner controls reset to a market rent, because the buyer will pay one;
• assets the business does not need to trade, such as surplus cash, investments or a holiday flat, taken out and dealt with separately.

The result is maintainable earnings: what the business can be expected to earn year after year for a new owner. Buyers want at least two years of financial statements to tell a trend from a good year, and they pay for add-backs they can check, not for the ones they cannot.

Many buyers start from EBITDA because it compares operating profit regardless of how a business is financed. It ignores the cost of replacing equipment, so in a business that runs on vehicles or machinery, look at earnings after a realistic replacement spend as well.

Earnings multiples

For a profitable owner-run business, the usual method is maintainable earnings multiplied by a number. The multiple is the price paid for each rand of annual profit, so it mirrors the return the buyer wants: the riskier the profit, the higher the return they need and the lower the multiple.

Multiples are sometimes taken from companies listed on the JSE (the Johannesburg Stock Exchange) or from published deals. Those are a reference point, not an answer. A listed company is larger and more diversified, and its shares can be sold in a day; a private business cannot, so a valuer adjusts for size and for how hard the business would be to sell.

We do not publish a typical multiple, because there is no honest single figure: two businesses with the same profit can sell at very different multiples.

Net asset value: the floor

The asset approach adds up what the business owns at market value and subtracts what it owes. It answers a different question: what would the parts fetch?

• For a profitable business, it sets the floor. If maintainable earnings justify more, the difference is goodwill: the value of the name, the customers, the systems and the staff working together.
• For a business that makes little or no profit, net assets are often the real value. An earnings valuation below net assets is a sign the parts are worth more than the whole.
• For asset-heavy businesses such as transport, plant hire, farming or manufacturing, the condition and market value of the fleet and machinery carry much of the price.

The basis matters: what equipment fetches in an orderly sale of a trading business is not what it fetches when a closed business has to clear its premises. Stock is usually counted and priced separately on the effective date. If an estate or a board needs a written figure for plant or vehicles, see valuations and inspections.

Discounted cash flow

A discounted cash flow (DCF) valuation forecasts the cash the business will generate over several years, adds a value for the years after that, and discounts the total back to today at a rate that reflects the risk. It is the most rigorous method on paper and the most sensitive: a small change in the growth or discount rate moves the answer a long way.

It suits larger businesses with contracts, a record of meeting budget and forecasts a buyer can test. For a small owner-run business it is mostly a cross-check. A buyer abroad will often run a DCF in their home currency, with a discount rate that includes the rand and the risk of investing in another country, which is one reason two buyers can value the same business differently.

Sector rules of thumb

Some industries use shortcuts: a price per room for lodges and guest houses, a multiple of recurring monthly revenue for subscription and connectivity businesses, a multiple of turnover for some retail and service businesses, a price per outlet for franchises.

Use them as a sense check, not a valuation. A turnover rule says nothing about whether the business makes money, and a price per room says nothing about the lease, the land the lodge stands on or the state of the buildings. If you are looking at hospitality, see buying a lodge or guest house in South Africa.

What moves the value up or down

A buyer checks each of these in due diligence (see the due diligence checklist). In a share sale, arrear tax and other liabilities stay in the company being bought.

Staff obligations

When a solvent seller sells a business as a going concern, staff transfer to the buyer automatically under section 197 of the Labour Relations Act, with their existing rights and obligations, unless a different arrangement is agreed in writing with the unions or employee representatives (section 197(6)). The old and new employer must agree a value, as at the transfer date, for accrued leave pay, the severance pay that would be due on a retrenchment and any other amounts owed but unpaid, agree in writing who pays it, and tell each transferring employee the terms (section 197(7)). For 12 months the seller can remain jointly liable for those amounts if a transferred employee is retrenched or the employer is liquidated or sequestrated, unless the seller complied with section 197, and both employers are jointly liable for claims that arose before the transfer (section 197(8) and (9), Labour Relations Act). The amount is often settled as a price adjustment, so it belongs in the valuation, not after it.

If the seller is insolvent, section 197A applies instead: staff still transfer, but the rights and obligations from before the transfer stay with the insolvent employer, and section 197(7), (8) and (9) do not apply. That changes what a buyer of a business out of liquidation takes on.

B-BBEE

B-BBEE (Broad-Based Black Economic Empowerment) is South Africa's scorecard of five elements: ownership, management control, skills development, enterprise and supplier development, and socio-economic development. Every organ of state (government departments, municipalities and other state bodies) and public entity must apply the B-BBEE codes when setting criteria for licences, procurement and incentives (B-BBEE Act section 10(1)), so for a business that sells to the state or needs a licence, its level is part of its value.

Ownership can move the level on its own. An exempted micro-enterprise (annual revenue of R10 million or less) is deemed Level 4, rises to Level 2 if at least 51% black-owned and to Level 1 if wholly black-owned, according to the B-BBEE Commission. Black ownership counts only black South African citizens as the Act defines them (section 1), so selling black-held shares to a buyer who is not a South African citizen reduces black ownership and can lower the level. Some sectors, tourism among them, have their own sector code, which can set different size bands and targets, and a business in such a sector is measured under that code (section 10(3)). Value the business at the level it will have after the sale.

When the value has to stand up on paper

Most private sales need no formal valuation: the price is what a willing buyer and seller agree. In some sales, though, the law looks at whether the price was fair, so write down the working behind the figure and keep it.

• Selling shares to a buyer outside the Common Monetary Area. South Africa has exchange control, run day to day by the Financial Surveillance Department of the South African Reserve Bank (SARB) through banks it appoints as Authorised Dealers. It treats a buyer as a non-resident if they normally live, are domiciled or are registered outside the Common Monetary Area (South Africa, Lesotho, Namibia and eSwatini); a buyer in Namibia, Lesotho or eSwatini counts as a resident for these rules. Exchange control lets non-residents invest freely, provided the deal is at arm's length, at a fair, market-related price and paid for in an approved way: foreign currency brought in through a South African bank, or rand from a Non-resident Rand account in the buyer's name. On a sale of shares, the onus is on the South African buyer or seller to prove the price was fair and market related. The bank views documentary evidence of the price, such as an auditor's certificate where applicable, and refers doubtful cases to the Reserve Bank, so ask your bank what it needs before you agree the price; an independent valuation supports it. See exchange control for foreign investors.
• Structuring a deal with a non-resident. Any loan account between a South African party and a non-resident, for example where the buyer takes over the seller's loan to the company, needs the Reserve Bank's prior written approval, and paying the price over time may too, so settle the structure with your attorney and bank before the price is agreed. An offshore company owned by South African residents (a "loop structure") is a separate case with its own reporting rules. A few regulated sectors also have their own ownership limits: for example, a foreigner may not control a commercial broadcasting licensee or hold more than 20% of one (Electronic Communications Act section 64). Your attorney checks whether any such rule applies.
• A company selling most of what it owns. A company disposing of all or the greater part of its assets or undertaking (more than half, fairly valued) needs a special resolution of its shareholders, and what it is disposing of must be fairly valued as at the date of the proposal (Companies Act sections 1, 112 and 115). This does not apply to a disposal under an adopted business rescue plan or within a wholly owned group (section 112(1)). If the seller is a subsidiary and the disposal amounts to most of the group, its holding company's shareholders may also have to approve (section 115(2)(b)).
• Selling to family or to a company you are connected to for tax purposes. For capital gains tax, a sale to a connected person (as defined in the Income Tax Act), such as a relative, at a price that is not an arm's length price is treated as made at market value (paragraph 38 of the Eighth Schedule to the Income Tax Act; SARS capital gains tax guide, para 9.4). The test applies if the parties are connected immediately before or immediately after the sale. Selling below value can also count as a donation: property sold for a consideration SARS considers inadequate is treated as donated (Income Tax Act section 58), and donations tax is 20%, rising to 25% once cumulative donations since 1 March 2018 exceed R30 million (SARS: donations tax rates; SARS, Taxation in South Africa 2026, section 6).
• Share sales generally. Securities transfer tax, which the purchaser of the shares owes, is 0.25% of the higher of the price paid and the market value of the shares (SARS, Taxation in South Africa 2026, section 17; levied since 1 July 2008: SARS: securities transfer tax), so a low price does not reduce it.

Valuing a South African business from abroad

A buyer outside the Common Monetary Area values what reaches them, not only what the business earns. Four things sit in between:

• Dividends tax. Dividends paid by South African companies on or after 22 February 2017 carry dividends tax of 20%, withheld when they are paid (SARS: dividends tax). A double taxation agreement between South Africa and the buyer's country may reduce the rate, but only if the foreign shareholder gives the paying company the SARS declaration and undertaking before the dividend is paid (it may need renewing after five years); otherwise the full 20% is withheld. Reduced treaty rates often apply only to a company holding a minimum stake, so how you hold the shares affects what reaches you.
• Getting money home. Under the SARB rules, banks may transfer dividends to non-resident shareholders in proportion to their shareholding once SARS (the South African Revenue Service) has confirmed tax compliance, and the proceeds of a later sale of non-resident-owned assets may be regarded as freely transferable. Keep the bank's records of the money you bring in, and make sure the share certificate is endorsed "Non-Resident" when you buy: the rules require it for shares with any non-resident interest, and it is part of the paper trail that lets dividends and sale proceeds go back out. The exchange control regulations are being rewritten (National Treasury published a draft for comment in April 2026); the current rules apply until new ones are final.
• Tax when you sell. A non-resident pays South African capital gains tax only on South African immovable property and on assets of a branch (permanent establishment) here. Shares count as immovable property if 80% or more of their value comes from South African immovable property (leasehold can count), as with many lodge and farm companies, and you hold at least 20% with connected persons; the gain on selling them is then taxable. On such a sale for more than R2 million, the purchaser must withhold 7.5%, 10% or 15% of the price for SARS (Income Tax Act section 35A; SARS: non-resident sellers; rates as at 30 September 2026 in SARS, Taxation in South Africa 2026, section 2.15) unless SARS issues a directive for less. A tax treaty can change the position, so check it with a tax adviser before you buy.
• The rand. Profit earned in rand is worth more or less in pounds, dirhams or yuan as the exchange rate moves, for as long as the buyer owns the business.

None of this changes what the business is worth to a South African buyer, so a sale open to both lets each price it on their own terms. This guide is general information, not advice on your deal: on any purchase from abroad, appoint a South African attorney, a tax adviser and your bank (the Authorised Dealer that will move the money) before you agree a price. More for buyers abroad on our international buyers page.

Why the market sets the final price

A valuation is an informed opinion of what a business should fetch. The price is what a qualified buyer actually pays, and the two meet only when enough of the right buyers look at the business at the same time.

• On auction with a reserve, the valuation informs the reserve: the lowest price you will accept. Bidders compete in the open, to a set closing date, on the same published conditions of sale, and if bidding stops below the reserve the business does not sell on the day. See the reserve price explained.
• By private treaty, the business is offered to buyers who have signed a non-disclosure agreement and shown they can fund the purchase, and the price is negotiated. See the confidential business sale process.

Competition also tests a question no valuation settles: is the business worth more whole or in parts? In September 2026 we offered the CMVAS Group, a connectivity, ICT distribution and critical power business, on auction both as separate businesses and as a whole, on terms that the highest offer, the sum of the parts or the group as one lot, would determine the winning bidder.

Bidding on our auctions is online, and our live sales take bids in the room as well, so you can take part from anywhere. A buyer who is not a South African citizen can open an account in our online auction room with a passport number (see how to register and bid online). When we appraise a business, we look at the financials, the lease, the asset register and the staff complement, and tell you what a buyer is likely to pay and why. Start with a confidential call through business sales, or see which businesses are for sale.