The short answer
Most privately owned businesses sell for a multiple of normalized earnings. Small owner-operated businesses commonly sell for about 2–3.5× seller's discretionary earnings (SDE). Established companies with $500K–$5M of EBITDA commonly sell for about 3–6× EBITDA. Where yours lands depends on risk: owner dependence, customer concentration, recurring revenue, growth, margins and the quality of your financial records.
Step 1: Calculate normalized earnings
Buyers start with reported profit and adjust it to show what the business really earns. Two measures are common:
- Seller's discretionary earnings (SDE): pre-tax profit plus all owner compensation, interest, depreciation and amortization, and genuine one-time or personal expenses. Used for smaller businesses where the buyer will likely run the business personally.
- EBITDA (earnings before interest, taxes, depreciation and amortization): uses a market salary for the management role instead of adding back all owner pay. Used for businesses with a management team, generally from around $500K of earnings upward.
Common add-backs include one-time legal or consulting fees, personal vehicle or travel costs run through the business, family members paid above market, and owner pay above what it would cost to hire a replacement. If you're paid below market, expect a buyer to deduct the difference. Every add-back needs documentation; buyers discount what they can't verify.
Step 2: Apply a multiple
Normalized earnings are multiplied by a factor that reflects risk and growth. Exact multiples vary by industry, size and market conditions, but as a general orientation for Canadian private businesses:
| Business size | Earnings measure | Typical multiple |
|---|---|---|
| Small owner-operated (under ~$500K SDE) | SDE | About 2–3.5× |
| Lower middle market (~$500K–$5M EBITDA) | EBITDA | About 3–6×, higher for exceptional businesses |
| Larger companies (over ~$5M EBITDA) | EBITDA | Often higher, especially with strategic or private equity interest |
These are broad ranges, not a quote. A professional valuation, or a conversation with a qualified buyer, places your business much more precisely.
A worked example
A GTA service business reports EBITDA of $850,000. The owner pays themselves $270,000; a general manager would cost $150,000. The business also paid $30,000 in one-time legal fees and $15,000 for the owner's personal vehicle.
| Reported EBITDA | $850,000 |
| + Owner pay above market ($270K − $150K) | $120,000 |
| + One-time legal fees | $30,000 |
| + Personal vehicle | $15,000 |
| Adjusted EBITDA | $1,015,000 |
|---|---|
| × Multiple (illustrative) | 4.5× |
| Enterprise value | ≈ $4.57 million |
| − Bank debt repaid at closing | ($600,000) |
| Equity value before working capital adjustment, fees and tax | ≈ $3.97 million |
The figures are illustrative. The point is the sequence: normalize earnings, apply a multiple, then adjust for debt, cash and working capital to reach what the shareholders receive.
What raises or lowers your multiple?
| Raises value | Lowers value |
|---|---|
| A management team runs day-to-day operations | The owner holds every key relationship and decision |
| No single customer above roughly 15–20% of revenue | One or two customers make up a large share of sales |
| Recurring or contracted revenue | Lumpy, one-off project revenue |
| Steady or growing revenue and margins over 3+ years | Declining or volatile results |
| Clean, accountant-prepared financial statements | Personal expenses mixed in; add-backs that can't be supported |
| Well-maintained equipment and documented processes | Deferred capital spending the buyer will have to fund |
| A long-term lease or owned facility | A short lease, or one that can't be assigned |
From enterprise value to what you take home
- Debt and cash. Most deals are "cash-free, debt-free": you keep surplus cash and repay debt from the proceeds.
- Working capital. The buyer expects a normal level of receivables, inventory and payables to stay in the business. The price moves up or down if the amount at closing differs from the agreed target.
- Taxes. Selling shares or assets, and whether you can use the Lifetime Capital Gains Exemption, can make a large difference. See Asset sale vs. share sale in Canada.
- Deal terms. Part of the price may be paid later through a vendor take-back (seller financing) or an earn-out tied to future results.
- Fees. Broker or advisor success fees, plus legal and accounting costs.
Price vs. terms
A $4.0M offer with $3.6M at closing is not the same as a $4.3M offer with $2.5M at closing and the rest in an earn-out you don't control. Compare offers on cash at closing, certainty of closing (financing and conditions), the security behind any deferred payments, and after-tax proceeds.
What if you own the building?
Real estate is usually valued separately from the operating business. Many owners keep the property and sign a long-term lease with the buyer, which provides ongoing rental income; others sell it with the business. Either way, the business should pay market rent when it's valued, or earnings will be overstated or understated.
Why online valuation calculators fall short
Calculators and industry rules of thumb apply an average multiple to reported numbers. They can't see your add-backs, customer concentration, owner dependence, equipment condition or working capital needs, which are exactly the things that move a real offer. Use them for orientation only.
How to get a realistic number
- A Chartered Business Valuator (CBV): a formal, defensible valuation report. Useful for family transfers, shareholder disputes and tax planning.
- Your accountant: can normalize earnings and suggest a range.
- A broker's opinion of value: useful, but a broker competing for the listing has a reason to aim high.
- A conversation with a qualified buyer: the most direct read on what the market will actually pay.
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