Evaluate with data
Sellers present the best version of the business. Your job is to find the version that's actually true — normalising EBITDA, testing the multiple, and stress-testing the customer base.
What this step covers
- Normalise EBITDA: strip owner expenses, one-offs, and related-party items.
- Triangulate a valuation range: EBITDA multiple, DCF, and asset floor.
- Run the due-diligence checklist: legal, tax, commercial, operational, HR.
The detail
Normalising EBITDA — the add-backs that matter
- Owner's salary above market rate for the role.
- Personal expenses run through the business (vehicle, fuel, family phone bills).
- Related-party rent, management fees, or supplier mark-ups.
- One-off legal, restructuring, or settlement costs.
- Discontinued product lines.
Valuation methods used in Kenyan SME deals
| Method | When it applies | Typical multiple |
|---|---|---|
| EBITDA multiple | Profitable, stable cash flow | 3–6x (most SMEs); 6–10x (asset-light, growing) |
| Revenue multiple | Fast-growing, low EBITDA | 0.5–2x revenue |
| Discounted cash flow | Stable, predictable cash flows | Discount rate 18–25% for Kenyan SME risk |
| Asset value | Asset-heavy, low profitability | Net asset value as floor |
| Rule-of-thumb | Sector-specific (e.g. 4–5x annual rent for property) | Use as sanity check only |
The diligence checklist — every category
- Legal — title, leases, IP, litigation, regulatory licences.
- Tax — KRA compliance, exposure, transfer pricing, related-party.
- Financial — quality of earnings, working capital, capex needs.
- Commercial — customer churn, contract terms, sales pipeline.
- Operational — systems, supplier dependence, lease terms.
- HR — key staff retention, statutory compliance, redundancy exposure.
Undisclosed KRA arrears, related-party debt larger than declared, criminal proceedings against directors, or material customers about to leave. Get out — these never get cheaper to fix later.
Frequently asked
How long does due diligence take?+
4–8 weeks for an SME. Longer if there are regulatory licences (banking, insurance, transport) to transfer.
Who pays for due diligence?+
The buyer almost always. Budget 2–5% of the deal value for legal, financial, and tax diligence.
The information in this guide is provided for general guidance only and is subject to change. Fees, timelines, and regulatory requirements in Kenya are updated regularly. Before acting, please confirm details with the relevant authority (KRA, eCitizen, BRS, county government, or other regulator) or speak with a qualified MyBiashara advisor. MyBiashara is not liable for decisions made solely on the basis of this content.
