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Stage 2 of 6 — Buying a business

Evaluating the financials: what the business is really worth

The seller has named a price. This stage is about whether that price makes sense, assuming for now that the figures you were given are honest. Testing whether they are honest is the next stage.

You do not need to be an accountant to do this well. You need to understand two things the asking price hides, and then run the numbers. The tool on this page does the arithmetic. The context below is what makes the output mean something.

The asking price is where the negotiation starts, not where it ends

A business does not have a price the way a listed share has a price. It has an asking price, which is the seller's opening position, and a value, which is what the earnings justify. The two are rarely the same, and in the South African market the gap is usually wide, because most businesses are marketed by brokers paid a percentage of what they sell for.

So treat the asking price as information about the seller, not about the business. What the business is worth to you comes from its earnings, the multiple those earnings justify for its type and its dependence on the current owner, and what you would have to fund to take it on. The rest of this stage is about getting to that number.

Normalised earnings: what the business really makes

The single most important number in a small business sale is not the profit on the income statement. It is the normalised profit: what the business actually earns once the current owner's personal arrangements are stripped out of it.

Owner-run businesses carry the owner through the accounts. A salary that may be above or below market, a vehicle, travel, medical aid, the spouse on the payroll, the occasional personal cost booked as an expense. Some of these are legitimate add-backs, because a new owner would not carry them. Others are the seller quietly inflating the earnings you are being asked to pay a multiple of. Knowing the difference is most of the skill in valuing a business to buy.

This works in both directions. A seller adds back their R80,000 salary to lift the earnings, when replacing them would cost R400,000 a year. The add-back is real; the number is not. The tool below walks you through the normalisation the way a buyer's accountant would, and shows you the gap between the reported profit and the earnings that actually support a price.

Run the numbers

Enter three years of the seller's financials below. The tool normalises the earnings, applies a multiple for the business type, checks the financial health across seven dimensions, and shows you where the asking price sits against an indicative fair value range. It is indicative, not a formal valuation, and it is only as good as the figures you put into it.

Step 1 of 4 · Deal context

Tell us about the deal

These settings shape the whole evaluation: which benchmarks apply, which earnings basis fits, and whether the price you are being asked can carry the debt you would take on.

Sets margin bands, working capital norms and the indicative multiple range.

The SA convention is often "plus stock at value". We add stock to the price for comparison.

A shares purchase inherits the company's liabilities. This affects your due diligence list.

Owner-operated businesses are priced on Seller's Discretionary Earnings (SDE).

Retail businesses in SA typically change hands at 1.5× to 3.0×. Adjust if you disagree.

Lets us test whether the business's own cash flow can service your loan.

Step 2 of 4 · The financials

Three years of numbers, straight from the seller's statements

All three years are required, oldest first. The trends between the years matter more than any single figure, and a tool that let you skip a year would be lying to you about what it can see. Rand amounts, no cents.

Line itemTrend
Income statement
Revenue
Cost of sales
Operating expenses (total)
of which: owner salary and benefits
of which: rent
Depreciation and amortisation
Interest paid
Net profit before tax
Gross profit (computed)
Balance sheet
Cash and equivalents
Trade debtors
Stock
Other current assets
Fixed assets (net)
Trade creditors
Other current liabilities
Interest-bearing debt
Owner loans (owed by the business)
Equity
Owner flows
Drawings and dividends taken
Capex spent
Add detail (optional) · sharpens specific checks when provided
FY2023FY2024FY2025

Revenue from your single largest customer

Enables the concentration check.

Stated operating cash flow

If the seller can produce it. We cross-check it against the figure the statements imply.

Used instead of book value when comparing a "plus stock" price.

Step 3 of 4 · Normalisation

What the business really earns

Reported profit is not what you are buying. Owner-run businesses carry the owner's salary, perks and once-offs through the books. This step strips them out. It is where the real price is made or lost, which is why it gets its own screen.

FY2023FY2024FY2025

+ Owner salary add-back

The owner’s full package: salary, benefits, medical aid, retirement contributions. Added back because you are buying what the business produces for a working owner.

+ Family salaries above market rate

Only the excess above what you would pay an outsider for the same work.

+ Personal expenses through the business

Vehicles, travel, insurance, subscriptions. Common and legitimate to add back, but each item needs verifying.

− Once-off income

Asset disposals, insurance payouts, relief grants. Deducted because they will not repeat.

+ Once-off expenses

Legal disputes, relocation, genuinely once-off write-offs.

± Rent adjustment to market

If the premises are owner-owned and rent is above or below market, enter the adjustment to bring it to market. Positive raises earnings.

Step 4 of 4 · Your report

Generate the report

A free account is required to view the report. Your inputs are saved and restored after signup, and the report is stored on your dashboard so you can evaluate several businesses and compare them.

What the numbers cannot tell you

The tool tells you whether the price makes sense if the figures are honest. It cannot tell you whether they are. A set of accounts can be internally consistent, reconcile perfectly, and still describe a business that is not quite the one being sold. Proving the figures are true, against bank statements, SARS filings and the seller's own records, is the work of due diligence.