What Is My Business Worth? A Canadian Owner's Guide to Business Valuation

The honest answer to what drives value, what a buyer actually pays for, and how Canadian owners prepare their business for the number that matters

If you've built a business worth $2–10 million in revenue, at some point you've asked: what's it actually worth? Maybe a broker called. Maybe your accountant brought it up. Maybe you're just tired and wondering whether twenty years of work has built something valuable—or just built you a job.

The honest answer is that many entrepreneurs have an overly optimistic view of how much their business is worth, because they've never applied a formal valuation framework to their specific situation. Business owners approaching transition often discover that the number in their head and the number a buyer will pay are two different things.

This guide explains what actually drives business value in Canada, how valuators arrive at a number, what EBITDA and SDE mean and when each applies, and—most importantly—what you can do about it before someone asks the question.

Why valuation matters (even if you're not selling)

You don't need to be preparing for a sale to need a realistic view of what your business is worth. Determining a company's value is a complex process—part science, part art, and the number shows up in more situations than most owners expect.

You'll need a credible valuation for: bringing in a partner or investor, buying out an existing shareholder, securing financing beyond what your current assets will support, succession planning and estate freezes, divorce or estate settlements, and understanding whether the business you've built is actually building wealth—or just paying you.

That last one is the one most operators miss. Revenue is not value. Profit is not value. A business generating the same owner earnings as another can be worth double or triple depending on factors that have nothing to do with how hard you work. Knowing which factors apply to your business—and which ones you're weak on—is the difference between building an asset and running a high-paying job that disappears the day you stop showing up.

The two earnings measures that matter: SDE vs EBITDA

Before anyone talks multiples, you need to know what's being multiplied. In Canada, small and mid-sized businesses are valued on one of two earnings figures: SDE or EBITDA. Which one applies to your business changes what it's worth.

SDE — Seller's Discretionary Earnings

What it is: Net profit, plus your total compensation (salary, benefits, perks), plus any discretionary or one-time expenses you chose to run through the business.

When it's used: For owner-operated businesses where the owner is still doing the work—selling, managing jobs, running the operation. The business doesn't run without you, and a buyer knows it. SDE reflects what a working owner-operator can take out of the business.

What it means for value: SDE businesses typically command lower multiples than EBITDA businesses, because the buyer is not acquiring a business that runs without them—they're acquiring earnings tied to their own future labour. The more the business depends on you personally, the lower the valuation per dollar of earnings.

EBITDA — Earnings Before Interest, Tax, Depreciation and Amortisation

What it is: Operating profit before financing costs, taxes, and non-cash charges. It assumes a management team exists that the buyer inherits.

When it's used: For businesses that run without the owner's daily involvement. If you can take two weeks off without being contacted, you might be an EBITDA business. If your phone rings five times before you're out of the driveway, you're SDE.

What it means for value: EBITDA businesses command significantly higher multiples than SDE businesses in the same sector and size range, because the earnings are transferable. A buyer is purchasing cash flow that survives the ownership change, not cash flow contingent on their own effort.

Normalisation: cleaning up the number

Reported profit and the earnings a buyer will actually receive are rarely the same number. Normalisation is the process of adjusting historical financials to show what the business would earn under new ownership, with market-rate compensation and no personal expenses.

Common normalisations include:

• Owner compensation. If you're paying yourself below market for the role you're performing, that difference gets added back. If you're paying yourself above what the role would cost to replace, the excess comes out.
• Family on payroll. A spouse paid significantly above market for minimal work doesn't survive a sale. The buyer adjusts for it, whether you do or not.
• Personal expenses. The truck you use on weekends, the cottage 'retreat', your kid's tuition reimbursement—anything that wouldn't exist under an arm's-length owner comes out.
• One-time costs. A lawsuit settlement, a bad debt write-off, a pandemic loan, a failed expansion—these get adjusted out if they're genuinely non-recurring.
• Discontinued lines. If you used to sell a product you've since dropped, its revenue and cost get removed from the historical figures.

Here's what matters: an add-back a buyer will reject is worse than no add-back. It signals either poor record-keeping or an attempt to inflate the number, and it puts every other figure in the package under suspicion. The test is whether the adjustment survives a quality of earnings review by a buyer's accountant—not whether it's arguable over coffee.

If an add-back is uncertain, present it separately with the supporting explanation rather than folding it into the headline EBITDA. A buyer who sees the core number plus a bracketed adjustment with its rationale can make a decision. A buyer who sees one inflated figure with no breakdown assumes it's optimistic and discounts everything.

The three valuation approaches Canadian valuators use

Professional valuators—Chartered Business Valuators (CBVs) in Canada—typically use one or more of three methods, depending on what kind of business it is and what information is available. Each method can produce a different number; usually the highest supportable figure is taken as fair market value.

1. Income-based approach

The most common for profitable, operating businesses. It values the business based on the earnings or cash flow it's expected to generate. The capitalized earnings method takes maintainable earnings (normalized, recurring profit) and multiplies it by a factor derived from the required rate of return a buyer would expect on a business with this risk profile.

How it works: A buyer requiring a particular rate of return on their investment will pay a multiple that reflects that return. The riskier the business, the higher the required return, and therefore the lower the multiple. The calculation produces enterprise value (the business plus operating assets), to which you add non-operating assets and subtract debt to arrive at equity value.

This method works when: the business is profitable and expected to remain so, earnings are reasonably stable or predictable, and the business is more than the sum of its assets—there's commercial goodwill, customer relationships, and operational momentum that transfers to a buyer.

2. Market-based approach

Values the business by reference to what comparable businesses have sold for. This is how residential real estate works—recent sales of similar properties in the same area. For businesses, 'comparable' means similar industry, size, geography, and business model.

The challenge: private business sale data in Canada is thin. Public company multiples exist, but a large public company and a small private one aren't comparable without significant adjustments. Brokers and valuators maintain transaction databases, but access is limited and comparability is hard to verify.

This method works when: comparable transaction data is available and credible, the business is reasonably similar to others in the data set, and the market for businesses like this is active (buyers exist and deals close).

3. Asset-based approach

Values the business as the fair market value of its net assets—what everything would fetch if sold separately, minus liabilities. Rarely used for operating businesses, because if your business is worth more dead than alive, something is deeply wrong.

This method applies when: the business holds significant real estate or equipment whose value exceeds operating earnings (construction companies, equipment rental), the business is losing money or generates returns below the cost of capital, or the value is in the assets, not the operation (a holding company, a real estate portfolio).

For most operating businesses doing several million in revenue, this method produces the lowest value and is used only as a floor. If an income-based valuation comes in below liquidation value, the business is worth more in pieces—and the strategic question is why you're still operating it.

What actually moves the multiple

Two businesses in the same trade, same revenue, same city can trade at materially different multiples—sometimes double. The difference is never just the sector—it's a set of transferability, risk, and scalability factors that buyers price in whether or not the seller has thought about them.

What pushes value up:

• Recurring or contracted revenue. Maintenance contracts, retainers, service agreements—anything that survives a change of ownership and doesn't depend on the owner's personal relationships.
• Customer diversification. Many customers each representing a small percentage of revenue is worth more than heavy concentration, even if total revenue is identical.
• A management team. If the business has a GM, an operations lead, or anyone who makes decisions without asking you, it's worth more. If you're the only person who can quote a job, approve a purchase, or call a customer, it's worth less.
• Documented systems. If your pricing model, job costing, quoting process, and operational procedures are written down and transferable, they add value. If they live in your head, they don't.
• Clean financials. Reviewed or audited statements, consistent accounting policies, and normalized figures a buyer's lender will accept without adjustment.
• Transferable assets and relationships. Licences that don't require requalification, supplier terms that survive a sale, customer relationships documented in a CRM, contracts assignable without consent.
• Defensible position. Geography, certifications, reputation, regulatory moats, or switching costs that make the business hard to replicate.

What drives value down:

• Owner dependency. You win the work, price the work, manage the work, and keep the customers happy. A buyer is not buying a business—they're buying a job, and they'll pay accordingly.
• Customer concentration. Lose your top customers and a large portion of revenue disappears. A buyer will discount heavily for that risk, or walk.
• Inconsistent or cash-basis records. If your accountant can't produce a P&L by month for the last three years, a buyer's due diligence will cost you twice: once in the discount they apply, and again in the deals that don't close.
• Key-person risk. One estimator, one project manager, one foreman who's been there since day one. If they leave, what survives?
• Deferred capital expenditure. Equipment running on borrowed time, a facility that needs work, IT systems held together with duct tape—buyers price it in.
• Trending down. Revenue or margin declining without a clear, fixable cause makes a business uninvestable at any multiple.
• Litigation, tax arrears, or compliance exposure. CRA debt, outstanding builder's liens, unresolved lawsuits, WSIB non-compliance—each one is a discount or a deal-killer.

Structure vs. price: what you're actually offered

Headline price and what you take home are two different numbers. An offer isn't what lands in your account—it's a starting point for a negotiation about timing, risk, and taxes.

Deal structure includes:

• Cash at close vs. deferred payments. Immediate payment and deferred payment over several years are not the same deal, even if the headline number is identical.
• Vendor take-back (VTB) financing. You're lending the buyer part of the purchase price, secured against the business. If they default, you're taking it back—possibly damaged.
• Earnout. Part of the price is contingent on future performance. The buyer controls the business, the measurement, and the reporting. Earnouts protect buyers; they rarely protect sellers.
• Working capital peg. The purchase price assumes a 'normal' level of working capital (AR, inventory, WIP minus AP). If working capital at close is below the peg, the price adjusts down. If you've been running lean to boost cash, you'll pay for it here.
• Holdback or escrow. A portion of the price held for months or years to cover any undisclosed liabilities, warranty claims, or indemnity breaches.
• Asset sale vs. share sale. Buyers prefer asset purchases (they get a tax step-up and avoid inherent liabilities). Sellers prefer share sales (capital gains treatment, potential Lifetime Capital Gains Exemption access). The tax difference to the seller can be substantial.

A high multiple with most of the consideration in an earnout is often worth less than a lower multiple paid in cash. Your accountant and lawyer should model the after-tax, present-value proceeds of any offer before you agree to a number—because the number in the press release and the number in your account can differ significantly.

The Lifetime Capital Gains Exemption (LCGE)

One of the most valuable tax planning tools available to Canadian business owners, and one most don't know they have until it's too late to qualify. The LCGE allows eligible individuals to shelter a lifetime amount of capital gains from tax on the sale of Qualified Small Business Corporation (QSBC) shares. As of 2024, the limit is $1,016,836 for dispositions before June 25, 2024, and increases under proposed changes.

What that means in practice: sell QSBC shares eligible for the full exemption, and you can shelter over a million dollars in capital gains from tax. On a substantial sale, the exemption can save hundreds of thousands of dollars.

To qualify, your business must meet three tests:

1. It must be a Canadian-Controlled Private Corporation (CCPC) at the time of sale.
2. At least 90% of the fair market value of the corporation's assets must be used in an active business carried on primarily in Canada at the time of sale.
3. For the 24 months before the sale, more than 50% of the FMV of assets must have been used in an active business.

The asset test is the one most businesses fail. Passive assets—excess cash, investment portfolios, real estate not used in the business—erode the active asset percentage. If you're holding significant cash in the operating company because you didn't want to take a taxable dividend, you may have just disqualified yourself from a substantial tax saving.

The fix: purge passive assets before the 24-month lookback period starts. Pay down debt, bonus out excess cash, or transfer real estate to a holding company. This is not a last-minute fix—it's a three-year planning exercise, minimum.

Your accountant should be reviewing QSBC eligibility annually, not the year you decide to sell. Once the 24-month test is failed, you cannot retroactively fix it.

When to get a formal valuation (and what kind)

Not every situation requires an expensive comprehensive valuation report. The Canadian Institute of Chartered Business Valuators (CICBV) recognizes three levels of valuation report, each with a different cost, scope, and level of assurance.

Calculation report

What it is: A valuation based on limited review and analysis of financial information provided by management, with limited or no corroboration. The valuator takes your numbers at face value and calculates a range.

When to use it: Internal planning, preliminary negotiations, estate planning, shareholder agreements where all parties agree to accept the figure.

Cost: Lower end of the valuation spectrum.

Estimate report

What it is: More detailed than a calculation; includes interviews with management, some corroboration of key inputs, and a more thorough analysis of risks and assumptions.

When to use it: Where a higher degree of confidence is needed but a full comprehensive report isn't justified by budget or risk—succession planning, negotiating with a known buyer, minority shareholder disputes.

Cost: Mid-range, balancing detail and expense.

Comprehensive valuation report

What it is: The full treatment. Extensive corroboration, detailed analysis of every material assumption, third-party verification where needed, and a report that will withstand scrutiny in litigation or tax disputes.

When to use it: Litigation (shareholder oppression, divorce), CRA disputes, situations where the valuation will be contested or heavily scrutinized.

Cost: Highest, reflecting the depth and defensibility required.

For most business owners preparing for an eventual sale, an estimate report is the right balance between cost and credibility. It's enough to guide decision-making, negotiate from, and present to a buyer or lender—without the cost of a full comprehensive report you may not need.

The myths that cost owners money

"My business is worth a multiple of revenue"

No. Revenue multiples are used in specific industries (SaaS, software, some professional services) where profit is deliberately suppressed for growth, or where revenue is a reliable proxy for future earnings. In trades, construction, most service businesses, and anything project-based, revenue means almost nothing. A higher-revenue contractor with thin margins is worth less than a lower-revenue contractor with strong, predictable margins.

"I built this from nothing—that's worth something"

To you, yes. To a buyer, no. A buyer is purchasing future cash flows, not your past effort. The sweat equity, the years you worked for free, the near-bankruptcies you survived—none of that transfers. What transfers is systems, customers, a trained crew, predictable margin, and a business that works without you. If it doesn't work without you, the buyer is buying a job, and jobs don't command a premium.

"My competitor sold for a certain amount, so I'm worth that too"

Maybe. Or maybe they had contracted revenue and you don't. Maybe they had a management team and you don't. Maybe they had a strategic buyer who saw synergies you won't get. Maybe the number you heard was the headline price, not what they actually took home after earn-outs, holdbacks, and working capital adjustments. Comparable transactions matter, but only if they're genuinely comparable—and you rarely have the full details to know whether they are.

"I'll just hire a manager before I sell"

A manager you hired six months ago to make the business look transferable is not a management team. A buyer's due diligence will reveal that they've never made a decision without asking you, that customers still call you, and that the org chart exists on paper but not in practice. You don't build transferability in six months. You build it over three to five years, by genuinely stepping back, documenting what you do, training someone to do it, and letting them make mistakes while you're still there to fix them.

What to do with this

If you're three to five years from a potential exit, transition, or succession, here's what matters:

1. Get a baseline valuation. Not for a sale—for planning. An estimate report from a CBV will tell you what the business is worth today, what's driving that number, and what's holding it back. Treat it as a diagnostic, not a sales document.
2. Fix your financials. Reviewed statements, consistent policies, normalized EBITDA that a buyer's lender will accept without re-doing. If your accountant doesn't produce monthly P&Ls, find one who does.
3. Measure and reduce owner dependency. Document what you do. Hire someone to do half of it. Train them. Step back. Let the business run without you for a week, then two weeks, then a month. A business that survives your absence is worth substantially more than one that doesn't.
4. Diversify customers. If a small number of customers represent the majority of revenue, you don't have a business—you have a handful of contracts. Spread the risk before a buyer discounts it.
5. Check QSBC qualification annually. Don't find out years into the lookback period that you've been holding too much cash and the LCGE is gone. Purge passive assets, keep active business assets above the threshold, and document it.
6. Get clean on compliance. CRA arrears, WSIB gaps, outstanding liens, unresolved legal—fix them now, because they'll come up in due diligence and they'll cost you twice: once in the discount, once in deals that fall apart.

Business value is not an accident. It's built systematically, over years, by fixing the things buyers discount and strengthening the things they pay premiums for. The owners who walk away with the number they wanted are the ones who started preparing five years before they listed—not five months.

Assess your business readiness