What Your Business Is Actually Worth — And What Selling It Actually Costs
Succession is about who takes over. Selling is about what a stranger will pay — and what SARS, the Competition Commission and the Labour Relations Act take out of the deal before you see a cent. Here’s the valuation and exit framework most SME owners only learn once, usually too late.
Most owners find out what their business is worth at the worst possible moment — when a buyer is already sitting across the table with a number. By then, the multiple is set, the tax exposure is baked in, and the leverage has quietly shifted to the other side. Valuation and exit planning aren’t the same conversation as succession. Succession asks who runs the business next. Selling asks what it’s worth to someone who owes you nothing — and what happens to the price once the taxman, the regulator, and your own employment contracts have all taken their turn.
The Four Ways a Business Gets Valued
There’s no single “correct” number — only the number a specific method produces, for a specific reason
A valuer isn’t finding a hidden true value that’s been sitting there waiting to be discovered. They’re building a defensible number using one of four accepted approaches — and the method they pick shapes the answer as much as the business itself.
Unlike listed companies, which get priced by the market every trading day, private South African SMEs have no public market setting their value. Academic research into SME valuation practice in South Africa has described it as more art than science, precisely because there’s no formal structured market producing comparable, verifiable transaction data the way the JSE does for listed stock. That gap is exactly why the method chosen — and who’s doing the choosing — matters as much as the underlying numbers.
Discounted Cash Flow (DCF)
Forecasts the business’s future cash flows and discounts them back to today’s value using a rate that reflects risk. The higher the perceived risk, the higher the discount rate — and the lower the resulting valuation. Best suited to businesses with genuinely predictable, stable cash flow; weakest where forecasting is guesswork.
Earnings / EBITDA Multiple
Values the business as a multiple of its earnings before interest, tax, depreciation and amortisation. Popular because it’s fast and comparable across a sector — but the multiple itself is only as reliable as the comparable deals it’s benchmarked against, and those shift with interest rates and market confidence.
Comparable Company / Transaction Analysis
Prices the business against similar companies that have recently sold, or against listed peers adjusted for size and liquidity. In South Africa’s thin private-deal market, genuinely comparable transaction data for SMEs is scarce — which is part of why local valuation work leans more heavily on judgement than in deeper markets.
Asset-Based Valuation
Sums the fair value of net assets — useful for asset-heavy or distressed businesses, or as a valuation floor, but it systematically understates the value of businesses whose worth sits in client relationships, brand, or recurring revenue rather than balance-sheet assets.
Why an owner shouldn’t set the number alone
Getting an independent valuation — not a figure the owner backs into from what they need to retire on — is the single most common gap between businesses that sell at a fair price and businesses that sit on the market for years because the ask was never grounded in a method a buyer’s own advisors would accept.
Before a Valuer Even Opens the File
Buyers discount hard for anything that looks like undisclosed risk
The valuation number is downstream of the paperwork. A business that can’t prove its own numbers gets valued as if the worst-case version of those numbers is true.
Three things consistently move the number before a single valuation model is even built: three to five years of clean, audited financial statements; evidence that the business can run without the owner physically present, which materially reduces buyer risk; and a clear-eyed choice of exit route — third-party sale, family succession, management buyout, or liquidation — made early enough to shape the deal rather than react to it.
Owner-dependency is the single most common value-destroyer in SME sales. A business that stops functioning the day the founder stops showing up isn’t really being sold as a going concern — it’s being sold as a job, and buyers price it accordingly.
The Tax Bill Nobody Budgets For
Capital Gains Tax on a business sale, and the relief most eligible sellers don’t know exists
Selling a business isn’t taxed as income — it’s taxed as a capital gain, which means only a portion of the profit is added to taxable income. But that portion, and the relief available on it, changed meaningfully for the 2026/27 tax year.
Capital Gains Tax in South Africa works through an inclusion rate: for individuals, 40% of the net capital gain is added to taxable income and taxed at the seller’s marginal rate; for companies and trusts, the inclusion rate is 80%. Because the top individual marginal rate is 45%, that produces a maximum effective CGT rate of roughly 18% for individuals, versus an effective 21.6% for companies — a structural reason many exit plans favour selling shares personally rather than having a company sell its own assets.
The bigger shift for the 2026/27 tax year sits in the small business disposal relief. From 25 February 2026, SARS raised the qualifying small business CGT exclusion from R1.8 million to R2.7 million, and lifted the maximum net asset value a qualifying business may hold to be eligible from R10 million to R15 million — bringing more SME sales into range for relief. The exclusion applies to sellers aged 55 or older disposing of an active business interest, is cumulative across a lifetime (not per sale), and only applies to genuinely active business assets — equipment, goodwill, stock, operating property — not passive holdings like rental property or investment portfolios sitting inside the company.
Worked illustration — not a promise of your outcome
On a qualifying gain, applying the R2.7 million exclusion before the 40% inclusion rate and a 45% marginal rate can save an eligible seller in the order of R480,000–R500,000 in CGT compared to a sale without the exclusion. The exact figure depends entirely on the individual gain, structure and marginal rate — this is a reason to get a tax practitioner involved before signing a sale agreement, not a substitute for one.
The Employees Come With the Business
Section 197 of the Labour Relations Act doesn’t ask the buyer’s permission
If you’re selling the business itself — not just its assets — the staff transfer automatically to the new owner, on their existing terms. Neither party gets to cherry-pick who stays.
Where a business, or a discrete part of it, is sold as a going concern, Section 197 of the Labour Relations Act automatically substitutes the new owner into every existing employment contract on the same terms and conditions — the buyer doesn’t get to decline particular employees, and the seller can’t simply retrench the workforce ahead of a sale to hand over a clean slate. The old and new employer can agree a different arrangement under Section 197(6), but that requires a proper consultation process, not a side letter.
Whether Section 197 applies at all turns on whether the transaction is genuinely a transfer of the business as a going concern — retaining its identity, customers and operations under new ownership — or a straightforward asset sale, where the provision typically doesn’t bite. That distinction is decided on the substance of the deal, not the label the sale agreement gives it, so it’s worth confirming with an employment law specialist before the deal structure is finalised, not after.
Does the Competition Commission Need to Know?
For most SME sales, the honest answer is now no
There’s a regulator whose job is approving big company mergers before they happen. Most owner-run businesses were already too small to trigger it — and the threshold just moved further out of reach.
The Minister of Trade, Industry and Competition revised South Africa’s merger notification thresholds under the Competition Act with effect from 1 May 2026 — the first change since 2017. The combined turnover/asset threshold for a mandatory intermediate merger filing rose from R600 million to R1 billion, and the target firm’s own threshold doubled from R100 million to R200 million. Transactions that would previously have required notification and Competition Commission approval before implementation may now fall below the line entirely and qualify as an exempt small merger.
That’s genuinely good news for most SME exits — but not a blank check. The Commission retains the power to call in a small merger for review within six months of implementation if it has competition concerns, so a transaction that narrowly misses the threshold, or sits in a concentrated sector, is still worth a quick sanity check with a competition law specialist before closing.
The B-BBEE Angle Most Sellers Never Consider
A sale can be structured to generate ownership points — for the buyer, and sometimes for the seller too
Selling all or part of a business to Black owners isn’t just a transformation decision — under the right structure, it’s a recognised way to earn B-BBEE ownership scorecard points, and it can make your business a more attractive acquisition target in the first place.
Statement 102 of the B-BBEE Codes of Good Practice allows a seller to claim ownership scorecard recognition when a “separately identifiable related business” — a subsidiary, division, business unit, or similar — is sold to Black shareholders. To qualify, the sale must create a viable, sustainable business in Black hands, transfer real critical or managerial skills and productive capacity (not just a shell), be conducted at arm’s length, be independently verified, and the Black shareholders must hold the asset for a minimum of three years without unwinding it early.
For an owner already planning an exit, structuring even part of the sale through a qualifying Black-owned purchaser can turn a transaction that was happening anyway into a transformation credential — which, depending on the buyer pool, sector, and deal size, can itself widen the field of interested buyers and support the price. This is specialist B-BBEE legal and verification territory, not a DIY structure — get it reviewed before the sale agreement is drafted, not after.
The Bottom Line
Selling a business is not succession with extra paperwork. It’s a valuation exercise, a tax event, an employment law event, potentially a competition law event, and — if structured with intent — a transformation opportunity, all happening at once. The owners who get the best outcome aren’t the ones with the flashiest number in mind; they’re the ones who started building a sellable business — clean financials, reduced owner-dependency, a defensible valuation, and a tax and compliance picture mapped out — years before a buyer ever walked in the door.
None of the figures or thresholds above are static. CGT exclusions, merger thresholds and B-BBEE codes are all reviewed periodically, so any number here should be confirmed as current at the time an actual sale is being structured — this article is a map of the terrain, not a substitute for the tax practitioner, attorney and valuer who’ll sign off on your specific deal.