Business valuation in BC: what is your business worth?
A business valuation in BC starts with earnings, risk and what a buyer will pay. This is a plain guide for small and mid-sized businesses.
On this page
- What a multiple is
- The buyer wants a lower price. The seller wants a higher one.
- Three ways people get to a number
- Valuation methods compared
- Seller’s earnings, EBITDA and cleaning up the numbers
- What moves your value up or down
- Working capital, inventory and equipment
- Price follows risk
- Not all revenue is equal
- Can it run without you?
- Who is it worth the most to?
- Owned or leased property
- Asset sale or share sale
- How deal structure affects price
- What due diligence checks
- A prep timeline
- Questions owners and buyers ask
A business valuation is an estimate of what a buyer would pay for your business, based mostly on what it earns. Most small and mid-sized businesses are priced as a multiple of their yearly earnings. Your multiple might be 1.5, it might be 5. It all depends on many factors, and the rest of this page explains them.
What a multiple is
A multiple is the number a buyer multiplies a business’s yearly earnings by to arrive at a price. The earnings are usually one of two figures. Seller’s discretionary earnings (SDE) is the profit one owner-operator takes home, with their own pay added back. EBITDA is earnings before interest, taxes, depreciation and amortization, and it assumes a manager is paid a market wage to run the business.
The multiple is the buyer’s view of risk, written as a single number. A low multiple says the buyer thinks the earnings are fragile or hard to keep. A higher multiple says they believe the earnings will carry on, and maybe grow, after you leave.
- Illustrative example only
- Pretend numbers, not a real business or a market figure.
- $200,000 of earnings at 1.5
- A price of about $300,000.
- $200,000 of earnings at 5
- A price of about $1,000,000.
Same earnings, very different price. The gap comes from the factors below.
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
There are 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 |
Earnings or market multiple
How it worksNormalised earnings (SDE or EBITDA) times a multiple, checked against what similar businesses sold for
Best suited toProfitable businesses with a steady record
Watch forGood comparable sales for private businesses can be hard to find
Income (discounted cash flow)
How it worksForecast future cash flow, then discount it back to today for risk and time
Best suited toLarger businesses with reliable forecasts
Watch forSmall changes to the forecast or discount rate move the answer a lot
Asset-based
How it worksValue of the equipment, inventory and other assets, less debts
Best suited toAsset-heavy businesses, or ones with weak profits
Watch forIt can miss goodwill, such as customers and reputation
Seller’s earnings, EBITDA and cleaning up the numbers
The two earnings figures from above, SDE and EBITDA, compare like this.
| Topic | 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 |
Main buyer
SDEAn owner operator who will work in the business
EBITDAPrivate equity, family offices, larger companies
Typical size
SDESmaller, owner run businesses
EBITDALarger businesses with a management team
Owner’s pay
SDEAdded back
EBITDAReplaced 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.
| Item | $ |
|---|---|
| Profit before taxAs reported in the financial statements | $183,400 |
| Owner’s salary and benefitsWhat the owner pays themselves | + $118,600 |
| Personal vehicle and phonePersonal costs run through the business | + $14,250 |
| InterestDepends on how the business is financed, not how it runs | + $9,870 |
| DepreciationAn accounting charge, not cash spent this year | + $24,300 |
| One time legal costsWon’t repeat for a new owner | + $7,950 |
| SDE | $358,370 |
| Less a market manager’s wageWhat it would cost to hire someone to run it | − $96,500 |
| Adjusted EBITDA | $261,870 |
| At 3 times adjusted EBITDA | $785,610 |
|---|---|
| At 5 times adjusted EBITDA | $1,309,350 |
Where a business lands between those two depends on the factors below.
What moves your value up or down
No two businesses get the same multiple, so no two get the same price. These are the things that move your value up or down. Most come back to the three keys above: clear financials, operating history and growth potential.
- Size and stability of earnings Operating history
- Larger earnings that hold steady year after year
- Small or bumpy earnings that are hard to predict
- Customer concentration Operating history
- Many customers, none too large
- One or two customers bring in most of the sales
- Recurring revenue Operating history
- Contracts, subscriptions and repeat customers
- One-off jobs you have to win again every time
- Owner dependence Operating history
- It runs without you day to day
- Customers, suppliers and staff only deal with you
- The management team Operating history
- Experienced people likely to stay after the sale
- Key people likely to leave with the owner
- Growth potential Growth potential
- A clear, believable path to grow
- Flat or falling sales with no plan
- Industry and competition Growth potential
- A steady industry that lenders understand
- Heavy competition or an industry in decline
- The lease and location Operating history
- Years left, renewal options, consent to assign, a good location
- A short term left or a landlord who won’t consent
- Assets and equipment Clear financials
- Equipment in good shape and maintained
- Worn equipment the buyer must replace soon after closing
- Financial records Clear financials
- Clean, accountant-prepared numbers that match your tax returns
- Missing years, mixed personal costs, cash not recorded
- Deal structure and terms Clear financials
- Vendor financing or an earn-out shares the risk and can support a higher price (see the vendor financing guide)
- All cash at closing, which narrows the pool of buyers who can pay it
- The economy and interest rates Growth potential
- Lower borrowing costs and a strong economy
- Higher interest rates mean buyers can borrow less
The idea that price follows the buyer’s view of risk runs through Gary Schine’s How to Sell Your Business for More Money.
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.
Price follows risk
Every buyer is quietly asking one question: what could go wrong after I hand over the money? Each worry they can’t put to rest comes off the price, or shows up as tougher terms. Each one you remove ahead of time is money back in your pocket.
Here are the fears I hear most, and the prep step that answers each one.
| Topic | What the buyer worries about | What you can do about it |
|---|---|---|
| Customers | The best customers leave when you do | Introduce key customers to your manager or team now. Put repeat work on written agreements where you can. |
| Staff | Key people quit after the sale | Make sure more than one person knows each critical job. Keep pay and roles written down and fair. |
| The lease | No term left, or the landlord says no | Check the term, renewal options and assignment clause a year or two out. Renew or extend before you go to market. |
| The owner | Only you know how things work | Write down how the work gets done. Hand pieces to staff and take longer stretches away. |
| The numbers | The books don’t match the story | Clean, accountant-prepared statements that match your tax returns, with every add-back backed by paper. |
| Suppliers | One supplier could change the terms | Line up a second source, or get the main relationship on paper. |
| Surprises | Problems turn up in due diligence | Tell buyers the hard stuff early, with context. Raised up front it’s a discussion. Found later it’s a price cut. |
Customers
What the buyer worries aboutThe best customers leave when you do
What you can do about itIntroduce key customers to your manager or team now. Put repeat work on written agreements where you can.
Staff
What the buyer worries aboutKey people quit after the sale
What you can do about itMake sure more than one person knows each critical job. Keep pay and roles written down and fair.
The lease
What the buyer worries aboutNo term left, or the landlord says no
What you can do about itCheck the term, renewal options and assignment clause a year or two out. Renew or extend before you go to market.
The owner
What the buyer worries aboutOnly you know how things work
What you can do about itWrite down how the work gets done. Hand pieces to staff and take longer stretches away.
The numbers
What the buyer worries aboutThe books don’t match the story
What you can do about itClean, accountant-prepared statements that match your tax returns, with every add-back backed by paper.
Suppliers
What the buyer worries aboutOne supplier could change the terms
What you can do about itLine up a second source, or get the main relationship on paper.
Surprises
What the buyer worries aboutProblems turn up in due diligence
What you can do about itTell buyers the hard stuff early, with context. Raised up front it’s a discussion. Found later it’s a price cut.
None of these steps is glamorous. Together, they’re usually worth more than any amount of polish on the sales package.
Not all revenue is equal
Two businesses can show the same sales and the same profit and still be worth different amounts. The difference is how sure a buyer can be that the money keeps coming. Here’s the ladder, from least to most valuable.
- One-off salesEvery month starts from zero. Fine, but a buyer has to win it all again.
- Repeat customersPeople come back without a contract. Better, and stronger still if you can show it in the numbers year after year.
- Auto-renewing serviceCustomers stay unless they decide to leave. Think maintenance plans or monthly service.
- Under contractWritten agreements with a term. This is the revenue a buyer and their lender can count on.
Spread matters too. Many small customers beat a few big ones. If one customer is a large share of your sales, a buyer sees a business that could lose a big piece of itself with one phone call.
A pretend example: two landscaping companies each earn about the same. One mows on yearly contracts for forty strata buildings. The other does big one-time jobs for a handful of builders. Most buyers would pay more for the first one, and a lender would usually be more comfortable financing it.
Can it run without you?
This is the big one for owner-run businesses. If you are the salesperson, the estimator, the fixer and the only one with the supplier’s cell number, a buyer is really buying your job, and wondering what happens when you leave.
- Write it down
- How you quote, order, schedule and bill. A simple binder or shared folder is plenty.
- Hand pieces off
- Give one area at a time to someone on your team, and let them own it.
- Step away
- Take a week off, then two. Watch what breaks and fix it while you still have time.
- Pay the operator first
- Before anyone multiplies your earnings, take out a fair wage for whoever will run the place. Skip this and the number looks better than it is.
A business that runs well while you’re on a beach is the one buyers pay for. And it’s nicer to own in the meantime.
Who is it worth the most to?
Value depends on the buyer. A competitor may pay mainly for your customers. A related business may want your location or your crew. An individual buyer is often after a turnkey job with a good income. Knowing who would value your business most tells you who to talk to first. My buyer list is a good place to start.
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.
A strong business doesn’t make the building worth more, and a valuable building doesn’t make the business worth more.
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.
| Topic | Asset sale | Share sale |
|---|---|---|
| What is sold | Chosen assets: equipment, inventory, goodwill, contracts | The company’s shares; it keeps its assets, contracts and liabilities |
| Who keeps past liabilities | Generally the seller’s company | Generally stay with the company, so the buyer takes them on |
| Who it often suits | Buyers | Sellers |
| Tax for the seller | The company pays tax on the asset sale | The lifetime capital gains exemption may apply to qualifying small business shares |
| Sales tax | GST may be avoided with a joint election (form GST44) when buying all or most assets. BC PST may apply to some goods | Generally not; the assets don’t change hands |
What is sold
Asset saleChosen assets: equipment, inventory, goodwill, contracts
Share saleThe company’s shares; it keeps its assets, contracts and liabilities
Who keeps past liabilities
Asset saleGenerally the seller’s company
Share saleGenerally stay with the company, so the buyer takes them on
Who it often suits
Asset saleBuyers
Share saleSellers
Tax for the seller
Asset saleThe company pays tax on the asset sale
Share saleThe lifetime capital gains exemption may apply to qualifying small business shares
Sales tax
Asset saleGST may be avoided with a joint election (form GST44) when buying all or most assets. BC PST may apply to some goods
Share saleGenerally not; 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.
More on this in the vendor financing guide.
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.
- Two years outTalk to your accountant about structure and the capital gains exemption. Clean up the books. Stop running personal costs through the business.
- A year outBuild up your manager and team so the business runs without you. Review the lease and talk to your landlord. Document add-backs.
- Six months outGet an estimate of value. Put the documents below together. Fix small problems a buyer would find.
- Going to marketPrepare 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. Your multiple might be 1.5, it might be 5. It depends on many factors. 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.
Can an unprofitable business sell?
Sometimes, yes. A buyer may want its customers, location, equipment, licences or team, and pay for those rather than for profit. Expect a price closer to the value of the assets than a multiple of earnings.
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: 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.