Why Knowing Your Business's Value Is Non-Negotiable

Exit Is Inevitable, But Value Loss Doesn’t Have to Be

Whether through retirement, sale, illness or death, all business owners will eventually exit their company. Yet half of these exits are unplanned, commonly triggered by the 5 D’s: death, disability, divorce, disagreement or distress.

Despite this reality, 98% of small business owners don’t know what their business is worth [ReliantValue], even though for many, it represents 90% of their personal net worth.

The Exit Blind Spot

In South Africa, only 35% of people die with a valid will [InsuranceBiz], and over 70% have no estate plan. Among SME owners, this is particularly risky:

• Your business share must be valued for estate duty and capital gains tax.

• Without a clear valuation, your beneficiaries may inherit equity without liquidity, and face tax liabilities they can’t afford to settle.

A study of Western Cape farmers found that two-thirds had no estate plan. A statistic that reflects the broader SME landscape.

The Business Continuity Problem

Planning is sorely lacking:

• 76% of Southern African family businesses have no formal succession plan [PwC].

• Only 17% of South African family firms have a handover plan.

• Globally, just 30% of businesses make it to the second generation and only 12% to the third [FNB].

• Nearly 50% of business owners planning to retire within five years have no succession strategy.

The result? Infighting, business collapse and value destruction, simply because ownership terms and payouts were never agreed in advance.

The Danger of Biased Valuation Timing

If your shareholder agreement or Memorandum of Incorporation (MOI) lacks a valuation clause, you’re exposed. Remaining shareholders may:

• Appoint a “friendly” valuer after your death or resignation

• Time the valuation during a downturn

This often leads to undervalued buyouts and unfair payouts to you or your beneficiaries.

Outdated buy-and-sell agreements frequently use simplistic methods (e.g., book value or profit multiples), ignoring:

• Key person risk (dependency)

• Revenue quality and sustainability

• Intangible assets (brand, relationships)

• Market risk and industry cycles

Agreements Without Valuation Are Incomplete

Even if you already have:

• A shareholder agreement

• A buy-and-sell policy

• A trust structure

…your plan is incomplete without a clear valuation framework.

A robust agreement should:

• Specify trigger events (5 D’s)

• Define valuation methods (EBITDA multiple, DCF, asset-based)

• Appoint neutral valuers or a standardised formula

• Clarify payment terms (lump sum, instalments, insurance-backed)

Tax and Timing Matter

South Africa’s estate duty rates (20% up to R30M; 25% above) plus capital gains tax can create immediate tax burdens for families if planning isn’t in place.

Unplanned transfers may:

• Trigger estate duty (20–25%)

• Incur CGT (with only R1.8M relief for small businesses under R10M)

• Force equity sales if beneficiaries lack liquidity

A Global Pattern of Poor Exit Planning

This problem isn’t limited to South Africa:

• 75% of owners regret selling their business within a year, often due to poor planning

• 52% of U.S. business owners over 55 have no liquidity plan

• Only 33% of global family businesses have a written succession plan

Questions Every Business Owner Should Ask

• Who will value my business, and when?

• Is the method fair and market-aligned?

• Will my beneficiaries actually receive my share’s true worth?

• Have I accounted for the tax burden?

• Do my current agreements reflect all of this?

The Bottom Line

Proactive planning is the difference between legacy and loss. Knowing what your business is worth isn’t just financial intelligence, it’s your financial legacy.

It protects your family, safeguards your life’s work, and ensures that when your exit comes planned or not - your value doesn’t disappear.

Want to know if your valuation strategy holds up? Let’s talk.