Bricks, Bucks, or Buzz? Choose Your Valuation Style
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A business valuation is a way to work out how much a business is worth. Just like you can get your house or car valued, you can also get a value for your business. It tells you the estimated price someone might pay to buy the business, invest in it, or partner with you.
It’s not just about the money in the bank. It also looks at what the business owns, what it earns, and how strong it is in the market.
Why Would You Need a Valuation?
There are many reasons why someone might want to know the value of a business:
✅ Selling the business – You need to know what price to ask.
✅ Buying a business – You want to make sure the price is fair.
✅ Getting investors – Investors want to know how valuable your business is before putting in money.
✅ Applying for a loan – Banks may ask for your business value when you apply for funding.
✅ Bringing in a partner or shareholder – You need to know how much of the business they are buying.
✅ Divorce or legal matters – The value may be needed when dividing assets.
✅ Planning for the future – You may want to pass the business to family or plan your retirement.
✅ Tracking growth – Seeing how your business value changes over time can help with planning and decision-making.
When Should You Do a Valuation?
You don’t have to wait for a big event to do a valuation. It can be helpful to know your business value at any time. But here are some common times when people do it:
When preparing to sell the business.
When planning to buy another business.
When bringing in new investors or partners.
When applying for finance or funding.
When resolving disputes or legal issues.
Every few years, as part of long-term planning.
Doing a valuation doesn’t mean you have to make any changes right away. It simply gives you a clear picture of where you stand.
Different Ways to Value a Business
There are a few different methods used to value a business. Here are the most common ones, explained simply:
1. Asset-Based Valuation
This method looks at everything the business owns (like buildings, stock, equipment, and vehicles) and takes away everything it owes (like loans and bills).
💡 Think of it like this:
Assets minus liabilities = business value.
📌 Example:
Your business owns R5 million in assets and owes R2 million in debts. The business value would be R3 million.
➡️ Best for: Businesses with lots of physical assets, like farms, factories, or construction companies.
2. Income-Based Valuation
This method is based on the profit your business makes. It shows how much money your business can earn in the future, and turns that into a value today.
Usually, it takes your yearly profit and multiplies it by a number (called a “multiple”) based on your industry, risk, and growth potential.
📌 Example:
If your business makes R500,000 in profit each year, and the industry multiple is 4, your business may be worth R2 million (R500,000 x 4).
➡️ Best for: Businesses that make steady profits and have good future prospects.
3. Market-Based Valuation
This method compares your business to similar businesses that have recently been sold. It looks at market trends to find a fair value.
📌 Example:
If a similar business in your area sold for R1.8 million, and your business is slightly bigger or more profitable, yours might be worth R2 million.
➡️ Best for: Businesses in industries where there’s regular buying and selling, like franchises, shops, or online stores.
Which Method Should You Use?
There’s no one-size-fits-all answer. The right method depends on the type of business, its size, how it earns money, and what the valuation is for.
In many cases, a business advisor or accountant will use two or more methods and compare the results to get the most accurate answer.
Things That Affect the Value
Here are some common factors that can increase or decrease the value of a business:
📈 Consistent profits
📊 Strong cash flow
🧾 Clean and clear financial records
👩💼 Experienced and reliable staff
🛠 Valuable assets or equipment
👨👩👧 Loyal customers
🧺 Too much debt (can lower the value)
😕 Poor financial controls (can lower the value)
Final Thoughts
Knowing the value of your business is a smart move. Whether you're planning to sell, grow, or simply check in on your progress, a valuation gives you real insights into your business’s health.
It helps you make better decisions, prepare for the future, and speak confidently with banks, investors, and potential buyers.
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