What is My Business Worth? A Practical Guide for Kenyan SMEs
As someone who has dedicated years to corporate governance, operations, and building organisational capacity, I know how deeply personal and significant a business is to its owner. For most entrepreneurs in Kenya, their business isn’t just a source of income — it’s their most valuable asset. Yet, many don’t actually know what it’s worth.
A business valuation is how you figure that out. It’s the process of determining the economic value of your company. And it’s not just for when you’re planning to sell. I’ve seen valuations used effectively for strategic growth plans, securing investors, or applying for larger loans. Think of it like a financial health check. It tells you what your business is worth today and highlights ways to make it even more valuable tomorrow.
Speaking the Language: Key Terms in Business Valuation
Valuing a business is both a science and an art. Yes, there are clear formulas, but there are also important factors that numbers alone can’t capture. Getting comfortable with the terminology is the first step to truly understanding your business’s value.
Table 1: Key Business Valuation Terms
| Term | What It Means | Why It Matters |
|---|---|---|
| Valuation | The process of figuring out what your business is worth in today’s market. | It usually gives you a range, not an exact figure. This becomes your starting point for negotiations. |
| Asset-Based Valuation | A method that totals up all your assets and subtracts your liabilities. | This sets the minimum or “floor” value of your business. Useful for companies with lots of tangible assets. |
| Seller’s Discretionary Earnings (SDE) | The total financial benefit you, as an owner-operator, get from the business each year. `SDE = Profit + Owner’s Salary + Benefits`. | This is the key figure for small business valuations. It reflects the real cash flow a buyer would expect. |
| Multiplier | A number (often between 1.5 and 4) that you multiply by your SDE or profit to get the estimated value. | The stronger, more stable, and more attractive your business, the higher this multiplier will be. |
The Simplest Valuation Approach: The SDE Multiplier
While there are more technical ways to value a company, the SDE multiplier is by far the most practical and common for small and medium-sized businesses. It centres on your business’s ability to generate cash. Here’s an example I often share with SME owners — this time, let’s look at a small graphic design agency in Kenya.
Table 2: Sample Valuation Using SDE (Graphic Design Agency)
| Step-by-Step Calculation | |
|---|---|
| 1. Calculate Annual SDE | |
| Pre-Tax Profit: | KES 1,800,000 |
| + Owner’s Salary: | KES 1,500,000 |
| + Owner’s Benefits (personal use of company car, etc.): | KES 200,000 |
| Total SDE = | KES 3,500,000 |
| 2. Apply a Multiplier | For a small service business with a few key clients, we might use 2.0x. |
| 3. Calculate Estimated Business Value | `KES 3,500,000 x 2.0` Estimated Value = KES 7,000,000 |
This means a buyer would likely pay around KES 7 million, expecting to continue earning roughly KES 3.5 million annually from the business.
How to Increase What Your Business is Worth
It’s important to remember that value isn’t just about profits. Two businesses with the same earnings can be worth very different amounts. What makes the difference? Stability, predictability, and how easily the business runs without you. I’ve seen entrepreneurs boost their company’s valuation dramatically by focusing on just a few key areas.
Table 3: Ways to Boost Your Business’s Valuation
| Value Driver | What to Do | Why It Matters |
|---|---|---|
| Clean Financial Records | Keep meticulous books and prepare clear financial statements for at least the last 2-3 years. | Buyers or lenders trust businesses with transparent records — they’ll pay more for that confidence. |
| Recurring Revenue | Lock in long-term contracts or service agreements instead of chasing one-off jobs. | Predictable income is safer and more attractive, increasing your multiplier. |
| Customer Diversification | Don’t let any single customer account for more than 15-20% of your revenue. | This lowers the risk that losing one client could devastate the business. |
| Documented Systems | Write down your standard procedures so the business can operate without you. | Buyers want a business, not just a job. If it runs independently, it’s far more valuable. |
| Strong Brand & Reputation | Invest in customer reviews, testimonials, and consistent branding. | A respected brand draws in customers and commands loyalty, adding to your value. |
Getting a valuation isn’t just about today’s worth — it gives you a roadmap to grow your business into something even more valuable. Use a calculator to get an initial figure, then focus on these key drivers to build a truly great enterprise.