What is your business worth?
A plain guide to valuing a small or mid-sized business in BC.
A business valuation is an estimate of what a buyer would pay for your business, based mostly on what it earns. In Canada, BDC says multiples for small and medium-sized businesses could range between three and six times EBITDA (earnings before interest, taxes, depreciation and amortization), depending on the industry and market conditions.
The buyer wants a lower price. The seller wants a higher one.
That is the challenge of business valuation. The key to making the highest value transaction for both sides comes down to three things.
- Clear financial statements
- Several years of clean, accountant-prepared numbers that match your tax returns. If those don’t exist yet, have your accountant prepare them before you go to market.
- Good operational history
- A record of steady customers, staff and systems that shows the business runs well, year after year.
- Growth potential
- Room for the next owner to grow, and a clear picture of where that growth comes from.
The more prep work, the smoother the process. Early access to real numbers gives you firmer offers and fewer surprises in due diligence.
Three ways people get to a number
Some people pay for appraisals or valuations, some firms give them away for free. Some just pick a standard multiple.
- A paid appraisal or valuation
- An independent professional reviews the business and writes up a value, with the reasoning behind it. In Canada, Chartered Business Valuators (CBVs) are accredited and governed by CBV Institute and specialise in this work.
- A free valuation
- Some firms offer one at no cost, usually as a starting point for a conversation about selling.
- A standard multiple
- Some owners just pick a multiple common for their type of business and apply it to their earnings.
Each has its place. Whichever way you get there, the number still has to hold up in the buyer’s due diligence, and that comes back to clear financials, operating history and growth potential.
Valuation methods compared
BDC describes three broad approaches. A valuator often uses one as the main method and checks it against the others.
| Approach | How it works | Best suited to | Watch for |
|---|---|---|---|
| Earnings or market multiple | Normalised earnings (SDE or EBITDA) times a multiple, checked against what similar businesses sold for | Profitable businesses with a steady record | Good comparable sales for private businesses can be hard to find |
| Income (discounted cash flow) | Forecast future cash flow, then discount it back to today for risk and time | Larger businesses with reliable forecasts | Small changes to the forecast or discount rate move the answer a lot |
| Asset-based | Value of the equipment, inventory and other assets, less debts | Asset-heavy businesses, or ones with weak profits | It can miss goodwill, such as customers and reputation |
SDE, EBITDA and normalising earnings
| SDE | EBITDA | |
|---|---|---|
| Main buyer | An owner operator who will work in the business | Private equity, family offices, larger companies |
| Typical size | Smaller, owner run businesses | Larger businesses with a management team |
| Owner’s pay | Added back | Replaced with a market wage |
Normalising means adjusting the books to show what the business really earns for a new owner. You add back costs they wouldn’t carry and take out anything unusual. Every add-back should be documented, because buyers and lenders will check.
- Common add-backs
- Owner’s salary and benefits, personal costs run through the business, interest, depreciation, one-time costs such as a lawsuit or a move.
- Common deductions
- A market wage for a manager (for EBITDA), below-market rent paid to yourself, one-off revenue that won’t repeat.
- What doesn’t count
- Cash sales that aren’t in the books. If it isn’t reported, a buyer or lender can’t rely on it.
An example with pretend numbers
Pretend numbers for illustration only. Not a real business.
At three times that adjusted EBITDA, the business would be worth about $785,600. At five times, about $1,309,400. Where it lands in that range depends on the factors below.
What moves the multiple up or down
| Factor | Tends to push it up | Tends to push it down |
|---|---|---|
| Owner dependence | A manager and staff who run it day to day | Customers and suppliers only deal with the owner |
| Customer concentration | Many customers, none too large | One or two customers bring in most of the sales |
| Recurring revenue | Contracts, subscriptions or repeat customers | One-off jobs you have to win again each time |
| Staff and management | Experienced team likely to stay | Key people likely to leave with the owner |
| Growth | A clear, believable path to grow | Flat or falling sales |
| The lease | Long term left, with renewal options and consent to assign | Short term left, or a landlord who won’t consent |
| Records | Clean books that match tax returns | Mixed personal costs, missing years, cash not recorded |
BDC notes that many other factors can influence the multiple too, including goodwill and intellectual property.
Working capital, inventory and equipment
Working capital is the money tied up in running the business day to day: inventory and receivables, less payables. Buyers usually expect enough to be left in the business to keep it running on day one.
- Working capital
- Many deals set a normal level of working capital that stays with the business. If there is more or less at closing, the price may be adjusted.
- Inventory
- Sometimes included in the price at a normal level; sometimes counted at closing and added at cost. Old or slow-moving stock is often excluded or discounted.
- Equipment
- Usually included. Buyers will look at age, condition and what needs replacing soon. A list with serial numbers and service records helps.
Agree on how each is handled in the letter of intent (LOI), before due diligence starts.
Owned or leased property
This is where my real estate background comes in. The business and the property are usually valued separately. A strong business doesn’t make the building worth more, and a valuable building doesn’t make the business worth more.
- If you lease
- The lease is part of what the buyer is buying. Term left, renewal options, rent and whether the landlord must consent to an assignment all matter. Start the landlord conversation early.
- If you own the property
- You can sell both together, sell the business and lease the property to the buyer at a market rent, or keep the property. If you have been paying yourself below-market rent, the business earnings should be adjusted to a market rent.
- Highest and best use
- Sometimes the land is worth more for another use than the business that sits on it. That is worth knowing before you set a price on either.
Asset sale or share sale
In Canada, a business can be sold as assets or as shares of the company. The tax result is often very different, so speak with your accountant and lawyer before you agree on structure.
| Asset sale | Share sale | |
|---|---|---|
| What is sold | Selected assets, such as equipment, inventory, goodwill and contracts | The shares of the company, which keeps its assets, contracts and liabilities |
| Who keeps past liabilities | Generally the seller’s company | Generally they stay with the company, so the buyer takes them on |
| Who it often suits | Buyers | Sellers |
| Tax for the seller | Tax arises inside the company on the sale of its assets | The lifetime capital gains exemption may apply to qualified small business corporation shares |
| Sales tax | GST may be avoided with a joint election (form GST44) when buying all or most of the assets. BC PST may apply to some goods | Generally not, because the assets don’t change hands |
For 2026, the lifetime capital gains exemption is $1,275,000 for qualified small business corporation shares. To qualify, the company must meet CRA’s tests: at the time of sale it must be a Canadian-controlled private corporation with 90% or more of its asset value used mainly in an active business in Canada, and more than 50% throughout the 24 months before the sale. Cash or investments that build up in the company can affect this, which is one reason to plan early. More at CRA line 25400.
How deal structure affects price
The headline price is only part of the deal. How and when it is paid matters just as much.
- Cash at closing
- Usually worth more to a seller than the same amount paid later, because it is certain.
- Payments tied to results
- Some deals pay part of the price later, based on how the business performs (an earn-out). This can bridge a gap on price, but the seller carries the risk.
- Transition period
- Many buyers want the owner to stay for a set time to introduce customers and staff. A longer, well-planned handover can support a stronger price.
- Conditions
- Financing, due diligence and landlord consent conditions all affect how firm an offer really is.
Two offers with the same number can be worth very different amounts. Compare them on what you actually receive and when.
What due diligence checks
Due diligence is the buyer’s chance to confirm everything you have told them. It is where deals slow down or fall apart.
- Financial
- Financial statements, tax returns, bank statements, add-backs, receivables and payables.
- Legal
- Corporate records, contracts, permits and licences, any claims or disputes. Buyers often check the company in the BC Registry.
- Customers and suppliers
- Concentration, contracts, how long relationships have lasted, and whether they will stay after the sale.
- Staff
- Roles, pay, length of service and employment agreements.
- Property
- The lease or title, condition of the premises and equipment, and any environmental concerns.
- Operations
- Systems, processes and how much depends on the owner.
A prep timeline
Owners who start preparing a year or two ahead usually do better.
| When | What to do |
|---|---|
| Two years out | Talk to your accountant about structure and the capital gains exemption. Clean up the books. Stop running personal costs through the business. |
| A year out | Build up your manager and team so the business runs without you. Review the lease and talk to your landlord. Document add-backs. |
| Six months out | Get an estimate of value. Put the documents below together. Fix small problems a buyer would find. |
| Going to market | Prepare a confidential summary, use an NDA, and qualify buyers before sharing detail. |
What to prepare
- Three to five years of financial statements and tax returns
- A list of add-backs with records
- Your lease, key contracts and any licences
- Staff list with roles, pay and length of service
- Customer and supplier summaries
- Equipment list and its condition
Questions owners and buyers ask
What is my business worth?
Usually a multiple of what it earns, adjusted for risk. BDC says multiples for small and medium-sized businesses in Canada could range between three and six times EBITDA, depending on the industry and market conditions. Where your business lands depends on things like owner dependence, customers, records and growth.
Should I use SDE or EBITDA?
SDE (seller’s discretionary earnings) suits smaller businesses where one owner runs things day to day. EBITDA suits larger businesses with a management team, because it assumes someone is paid a market wage to run it.
Do I need a professional valuation before I sell?
Not always. Many owners start with an estimate based on earnings and recent sales. A formal valuation from a Chartered Business Valuator (CBV) makes sense when there are partners, a family transfer, tax planning or a dispute.
What are add-backs?
Costs in your books that a new owner wouldn’t carry, such as your own salary above a market wage, personal expenses run through the business, or one-time costs. Each one needs a receipt or a clear record, because buyers and lenders will check.
Is inventory included in the price?
It depends on the deal. Sometimes the price includes a normal level of inventory; sometimes inventory is counted at closing and added on top at cost. Agree on which in the letter of intent so there are no surprises.
Does it matter if I own the building?
Yes. The business and the property are usually valued separately. You can sell both, sell the business and lease the property to the buyer, or keep the property for another use.
Is a share sale or an asset sale better for me?
Sellers often prefer a share sale because the lifetime capital gains exemption may apply to qualified small business corporation shares. Buyers often prefer an asset sale. The right answer depends on your situation, so ask your accountant early.
How long does due diligence take?
It varies with the size of the business and how ready the records are. Clean, organised records usually make it faster.
How far ahead should I start preparing?
A year or two ahead is ideal. That gives you time to clean up the books, reduce owner dependence, sort out the lease and check whether your shares can qualify for the capital gains exemption.
Sources: BDC, how to value a business · BDC, EBITDA definition · CRA, indexed amounts · CRA, capital gains deduction definitions · CRA, line 25400 · CRA, form GST44 · Government of BC, PST · CBV Institute · BC Registry. General information only, not tax, legal or valuation advice.