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"What is this business actually worth?" It is the most important question in any purchase. In CFIB's 2026 research, 37% of Canadian owners also said not knowing how to value their business was a barrier to selling. This guide explains the methods brokers, lenders and buyers use, so you can judge whether an asking price is reasonable.

Start with normalized earnings

Valuation starts with what the business earns for its owner. Financial statements of owner-operated businesses usually need to be normalized: adjusted for items that won't continue after the sale. Examples:

• the owner's salary and personal expenses run through the company,
• one-time costs (a lawsuit, a major repair),
• family members paid above or below market rates,
• rent paid to a property the owner also controls.

SDE: the small-business standard

For most owner-operated "main street" businesses, the key number is seller's discretionary earnings (SDE): pre-tax earnings plus the owner's salary and benefits, interest, depreciation and amortization, and one-time or personal expenses.

SDE tells you how much cash flow is available to one full-time owner-operator, to pay themselves, service debt and reinvest.

EBITDA for larger businesses

Once a business has a management team and the owner isn't essential day to day, buyers usually value it on EBITDA: earnings before interest, taxes, depreciation and amortization, after paying a market salary to whoever runs it. EBITDA multiples are typically higher than SDE multiples because the business doesn't depend on its owner.

What multiples look like

Price is often expressed as a multiple of earnings. Large datasets of small-business listings in 2026 show most main-street businesses asking roughly 2× to 4× SDE, with a median around 2.6× to 2.7×. Multiples rise with:

• Size. Businesses with higher earnings command higher multiples.
• Independence from the owner. Manager-run businesses sell for more than owner-operated ones.
• Real estate. When the property is included, the overall price (and multiple) is much higher.
• Recurring revenue, diversified customers, growth and clean books.

These figures come mostly from North American listing data. Canadian prices vary by province, sector and community, so treat them as a sanity check rather than a rule.

Asset-based and market approaches

• Asset-based valuation sets a floor: what the equipment, inventory and property are worth on their own. It matters most for asset-heavy or underperforming businesses.
• Comparable sales look at what similar businesses actually sold for, which a broker or valuator can help you find.

Red flags that should lower the price

• Revenue concentrated in one or two customers
• Declining sales over the last three years
• A lease ending soon with no right to renew
• Key relationships that sit only with the owner
• Financial statements that don't match tax returns

Get a professional opinion

For a significant purchase, consider a Chartered Business Valuator (CBV) or an experienced CPA, especially if a lender or an immigration program will rely on the numbers. A well-supported valuation also gives you a stronger position at the negotiating table.

This article is general information only and not financial advice.

Sources: CFIB — business succession research, October 2026; How to value a small business — listing multiples analysis, 2026; BizBuySell business valuation resources.