Question 1

How do I value my small business in Canada?

Accepted Answer

There are three common methods to value a small business in Canada: (1) Revenue Multiple Method, which applies an industry-specific multiple to annual revenue; (2) SDE (Seller's Discretionary Earnings) Multiple Method, which multiplies adjusted owner earnings by a market multiple; and (3) Asset-Based Method, which values the business based on its tangible and intangible assets. Most business brokers use a combination of these methods to arrive at a fair market value range.

Question 2

What is SDE (Seller's Discretionary Earnings)?

Accepted Answer

Seller's Discretionary Earnings (SDE) represents the total financial benefit a single owner-operator receives from a business. It is calculated by taking net profit and adding back the owner's salary, owner's benefits, one-time or non-recurring expenses, and non-cash expenses like depreciation. SDE is the most common metric used to value small businesses with annual revenue under $5 million in Canada.

Question 3

What multiple should I use to value my business?

Accepted Answer

The appropriate valuation multiple depends heavily on your industry and growth rate. SaaS and software companies command the highest multiples (3-6x SDE), while retail and food service businesses typically sell for 1.5-3x SDE. Higher revenue growth, recurring revenue, diversified customer bases, and strong profit margins all push multiples higher. A professional business valuator can help determine the right multiple for your specific situation.

Question 4

What is the lifetime capital gains exemption in Canada?

Accepted Answer

The Lifetime Capital Gains Exemption (LCGE) allows Canadian residents to shelter up to $1,016,836 (2024 indexed amount) in capital gains from tax when selling qualified small business corporation shares. This means if you sell your incorporated business, the first $1,016,836 in capital gains may be tax-free. Each individual shareholder can claim their own exemption, so a husband and wife who each own 50% could shelter over $2 million combined.

Question 5

How does revenue growth affect business valuation?

Accepted Answer

Revenue growth is one of the most important factors in business valuation. Businesses growing under 5% annually typically receive low-end multiples, while businesses growing 15-30% command premium multiples. Growth above 30% can push valuations significantly higher, especially in technology and SaaS sectors. Buyers pay a premium for growth because it signals future earnings potential and market demand.

Question 6

When should I get a professional business valuation?

Accepted Answer

You should get a professional Chartered Business Valuator (CBV) assessment when selling your business, bringing in investors or partners, going through a divorce or estate settlement, applying for significant financing, settling shareholder disputes, or planning your succession strategy. A formal valuation typically costs $5,000-$25,000 in Canada and provides a defensible, independent opinion of fair market value.

Industry	Revenue Multiple	SDE Multiple
SaaS / Software	2.5x - 8x	3x - 6x
Professional Services	0.8x - 2x	2x - 4x
Retail	0.3x - 0.8x	1.5x - 3x
Manufacturing	0.5x - 1.5x	2x - 4x
E-commerce	1x - 3x	2.5x - 4.5x
Healthcare	1x - 3x	2x - 5x
Construction	0.3x - 0.8x	1.5x - 3x
Food & Beverage	0.3x - 0.8x	1.5x - 3x
Technology Services	1.5x - 5x	3x - 5x
Other	0.5x - 2x	2x - 3.5x

Business Valuation Calculator

Business Details

Industry Benchmarks: Professional Services

Estimated Business Value

Revenue Multiple Method

SDE Multiple Method

Canadian Tax Considerations

Understanding Business Valuation Methods

Revenue Multiple

SDE Multiple

Asset-Based

Industry Valuation Multiples

Frequently Asked Questions

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