What Does a Business Valuation Cost?
Ah, the classic question every business owner asks at some point: “What’s my business worth?” And right after that comes the next question: “How much is it going to cost to find out?” Well, the answer is: it depends! There’s a wide range of prices based on things like the size of your business, how complex it is, and who you’re asking to crunch the numbers.
Let’s break this down, using South Africa as our playing field, though the same principles can apply no matter where you are. Here’s what you can expect:
Small Business, Small Price Tag (R5 million or less in revenue)
If your business is on the smaller side, say under R5 million per year, you might turn to your trusty accountant. Now, let’s be real for a second: your accountant is a master of spreadsheets, but business valuations? Not exactly their favourite pastime. They’re usually not jumping out of their chair to do this custom piece of work, but they want to keep you happy, so they look at your financial statements and give it a shot.
The process often goes like this: they’ll look at your EBITDA (fancy term for earnings before interest, taxes, depreciation, and amortization), and then they’ll add back those personal expenses you’ve cleverly put through the business (we see you). This is known as Seller Discretionary Earnings (SDE). Then, they apply a multiple—anywhere from 2 to 4—based on how risky they think your business is, and voilà! Your business is now worth… something.
Pros of this method? It’s quick and pretty cheap. Cons? It’s not super accurate, works best if the buyer is planning to work in the business themselves, and this valuation might fall apart if a larger buyer is looking to acquire the business.
Growing Business, Growing Costs (R10 million or more in revenue)
Once your business starts turning more than R10 million per annum, your accountant is probably going to pass the torch to a professional business valuation company, like Pinnacle Valuations. These folks sit you down, figure out why you need the valuation: is it for a sale, a management buyout, maybe a deceased estate. They’ll roll out the big guns: discounted cash flow models, capitalized earnings, equity approaches, and more models than a fashion show.
They don’t stop there. They’ll dig into your industry, compare you to your peers, and even look at private transactions to see what similar businesses have sold for. It’s like CSI: Business Valuation Edition.
For this kind of service, you’re looking at paying between 0.25% and 0.20% of your business’s revenue. It’s more detailed, more accurate, and more likely to impress those bigger buyers.
Big Business, Big Bucks (R100 million+ revenue)
Now, if your business has revenue over R100 million, you’ve most likely entered the world of mergers and acquisitions (M&A) and private equity. This is where things get really expensive and very customized. At this level, you’ll likely already have advisors in place (and if you don’t, you probably should—seriously, give us a call if you need help here). The valuations at this stage are a whole different ball game.
In Conclusion...
If you’re looking to get your business valued, whether you’re just starting out or you’re running a well-oiled machine, know that the price tag can vary. If you’re at the R5 million mark, your accountant can give it a go. Once you cross that R10 million threshold, you’re better off talking to a professional like Pinnacle Valuations.
Need help with the process? Reach out to Pinnacle Valuations at [email protected]. They’ll be more than happy to walk you through the journey of finding out what your business is really worth.