What “value” actually means in a business valuation — and why the definition decides the answer.
Ask three people what a business is worth and you may get three different numbers — and all of them can be correct. Not because anyone is wrong, but because they are answering different questions. “Value” is not a single thing. It is a family of related but distinct concepts, and the first job in any valuation is to be clear about which one is being measured. Get that wrong, and every calculation that follows is built on the wrong foundation.
This is the part most owners never think about, and it is where a great deal of confusion — and avoidable dispute — begins. So it is worth setting out plainly what the main bases of value actually mean.
Fair market value
This is the one most people have in mind, even if they have never named it. Fair market value is the cash price at which a business would change hands between a willing buyer and a willing seller — with neither under any compulsion to transact, and both fully informed of the relevant facts.
The conditions matter as much as the number. A “willing” buyer and seller, neither forced, both knowledgeable: that is a market operating normally. The moment one party is under pressure — a forced sale, a deadline, an information gap — you are no longer measuring fair market value, you are measuring something else.
Going-concern value
Going-concern value is the value of the business as a living, operating whole — trading, with its customers, staff, systems and earning power intact. For a healthy business this is usually the highest and most relevant measure, because the buyer is acquiring an enterprise that already works, not a collection of parts. Most of the value of a profitable business lives here, in its ability to keep earning.
Liquidation value
Liquidation value is the opposite end of the scale: the net amount that could be realised if the business stopped trading and its assets were sold off, after settling what it owes. It assumes the enterprise is being wound down rather than continued. Liquidation value is almost always lower than going-concern value — sometimes dramatically so — because it strips out goodwill and earning power entirely and values only what can be sold. It becomes relevant in distress, insolvency, or where a business is genuinely worth more broken up than kept running.
Book value
Book value is the one that causes the most trouble, because it looks like a value but is not one. It is an accounting figure, not an appraisal figure: the sum of the business’s assets less accumulated depreciation and amortisation, as recorded on the balance sheet. It tells you what the assets cost and how they have been written down over time. It tells you almost nothing about what the business is worth to a buyer. A profitable, growing business is routinely worth far more than its book value; a struggling one can be worth less. Reaching for book value as a proxy for what a business is worth is one of the most common and most expensive mistakes an owner makes.
Fair value — and why it is not the same as fair market value
There is one more, and it matters more in South African practice than its quiet name suggests: fair value. Although it sounds like a synonym for fair market value, it is a distinct basis used in particular legal and dispute contexts — shareholder buy-outs, oppression matters, and certain statutory rights under the Companies Act. Fair value can be assessed differently from open-market value, especially in how it treats a minority shareholding and whether discounts apply. The legal trigger for when fair value is the required basis belongs to the attorneys; recognising it, and applying it correctly, is the valuer’s job. The practical point for an owner is simply this: in a dispute, the basis of value can change the answer materially, and assuming “value is value” is how people end up arguing past each other.
Why this is the first question, not a technicality
None of this is academic. The basis of value is not a label you attach at the end — it is a decision made at the very start, because it determines which method applies, which assumptions are appropriate, and ultimately what the number is. The same business, valued for a sale, a divorce, a SARS matter or a shareholder exit, can legitimately produce different figures, because each calls for a different basis and purpose.
That is also why a credible valuation states its basis of value openly and explains why it was chosen. A number presented without its basis is incomplete — you cannot tell what question it answered, which means you cannot tell whether it answered yours.
If you are not sure which basis applies to your situation, that is exactly the kind of thing worth a short conversation before any work begins. Send me the details — the first conversation is free, and there is no obligation either way.