South African financial education | Facts checked 10 November 2026
A buy-and-sell agreement needs a workable way to determine the price of an owner's interest when a defined event occurs. An old agreed figure or the amount of insurance on a policy is not automatically a current business valuation.
Which value are you measuring?
Asset-based approaches look at relevant assets and liabilities. Earnings or market approaches use an appropriate earnings measure and justified comparable evidence. Discounted cash flow estimates future cash flows and discounts them for risk and time. None produces certainty just because it uses a formula.
EBITDA means earnings before interest, tax, depreciation and amortisation. It is different from net profit and cash flow. An EBITDA-based enterprise value normally needs a bridge to equity value before valuing a shareholder's stake.
A simple illustration
Assume normalised EBITDA of R600,000 and an illustrative multiple of four: enterprise value is R2.4 million. If relevant net debt is R600,000 and there are no other adjustments, equity value is R1.8 million. A proportionate 25% interest would be R450,000 in that simplified calculation.
The example does not recommend a four-times multiple. Working capital, surplus assets, shareholder loans, control rights and transfer restrictions can affect the result. Do not count debt or goodwill twice.
Put the process into the agreement
- Define the interest, trigger and valuation date.
- Specify the standard of value, formula, information and normalising adjustments.
- Agree who appoints an independent valuer and how disagreements, costs and deadlines are handled.
- Review the value and funding after material changes.
Insurance and the sale price can differ
A policy pays according to its accepted claim and terms. The agreement sets the sale price. Plan for shortfalls, excess proceeds and events that are not insured. Policy ownership, premiums, beneficiaries and tax/estate-duty consequences require professional assessment for the actual arrangement.
The GFS three-page practical guide includes the worked example and a discussion checklist. It is a preparation resource, not a valuation or a contract. An experienced valuation professional, attorney and licensed insurance adviser each have a different role.
Business Valuation Practical Guide - R49,99
Relevant GFS resources
- Partnership Assurance and Buy-and-Sell Agreements
- Business Assurance Setup Checklist - free
- Complete Financial Affairs Organiser
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General education only, not personalised financial, investment, insurance, tax, medical or legal advice. Confirm current rules, policy terms and suitability with an appropriately qualified professional. No return, tax saving, claim payment or legal outcome is guaranteed.