Before you value a business, decide what the value is for — because the purpose decides the number.
When an owner asks “what is my business worth?”, the honest first answer is a question back: what do you need the value for? It sounds like a dodge. It isn’t. It is the single most important thing to establish before any number is produced, because the purpose of a valuation determines the basis of value, the method applied, and ultimately the figure itself.
The same business, valued by the same person on the same day, can produce more than one defensible number — depending entirely on why the value is needed. That is not inconsistency. It is the nature of value: it is always measured for a purpose, and different purposes ask genuinely different questions.
Why one business can have several right answers
A business being prepared for sale is measured on what a willing buyer would pay for it as a going concern. The same business in a divorce may need to be valued at a specific past date, on a basis a family court accepts, with careful attention to how much of its worth depends on the owning spouse personally. In a shareholder dispute, the appropriate basis may be fair value rather than open-market value, which can treat a minority stake quite differently. For a SARS matter, what is needed is a defensible market value at the date of the relevant event, documented to a standard that will survive scrutiny.
Each of those is a different question, so each can legitimately give a different answer. The valuation is only meaningful once it is anchored to the right one.
The main purposes — and why each is its own brief
These are the situations that most often bring an owner to a valuation, each shaping the work differently:
- Selling or exiting the business — what a buyer would pay, built to support your negotiating position and survive due diligence.
- A partner buy-out, or buying or selling a part-share — valuing a partial interest, where the questions of control and marketability come into play.
- Divorce and accrual — an independent value, often at a defined date, prepared to the standard a family court expects.
- A shareholder dispute — an objective figure both sides can work from, frequently on a fair-value basis.
- SARS and Capital Gains Tax — a defensible market value at the date of the event, with the assumptions documented to the required standard.
- Estate planning and estate duty — a credible value to plan around, or to support an estate.
- Raising funding or investment — a value a funder will accept, with the reasoning behind it set out clearly.
A valuation built for one of these will not simply transfer to another. A figure prepared for internal planning, for instance, rarely survives a SARS challenge — not because the number is wrong, but because it was never assembled for that purpose or documented to that standard.
Why this matters before a single calculation
Establishing the purpose at the outset is not box-ticking. It decides the basis of value, which decides the method, which decides what evidence is gathered and how assumptions are framed. Start without it, and you risk producing a careful, professional-looking number that answers the wrong question — and discovers that only when it is challenged, in front of the buyer, the court or SARS, when it is too late to fix.
It is also a question of defensibility. A valuation that states its purpose and basis clearly can be tested and stand up. One that doesn’t can always be undermined with a single line: valued for what, exactly?
So the most useful thing you can do before commissioning a valuation is to be clear about why you need it — and if you are not sure, that is precisely what a first conversation is for. Tell me your situation and I will tell you honestly what is needed and which basis applies. The first conversation is free, and there is no obligation either way.