Ask what your business is worth and you’ll hear the same shape of answer from every serious buyer: a measure of normalized profit, times a multiple. The formula fits on a napkin. Everything interesting is in how the two numbers get set. Founders routinely leave money on the table by not understanding either one.
For owner-operated businesses, buyers use SDE (seller’s discretionary earnings), which starts from net profit and adds back the owner’s salary, personal expenses run through the company, one-time costs, and other discretionary items. For larger businesses with management in place, the measure is EBITDA, usually adjusted the same way. This “normalization” is a negotiation in itself: every add-back you claim needs a paper trail, and aggressive add-backs that collapse under diligence cost you credibility along with the dollars. Clean books a year before a sale are the cheapest valuation boost available.
In the Canadian lower middle market, most businesses trade somewhere between two and six times SDE/EBITDA, with small service businesses clustered at the lower end and larger, more transferable companies earning more. The multiple is really a price on risk, specifically the risk that the profit stops when ownership changes. Things that push it up: revenue that recurs under contract, a customer base where no single account dominates, a management team that stays, documented processes, and growth that doesn’t depend on the founder’s personal relationships. Things that push it down: the founder being the top salesperson, one customer over 20–30% of revenue, declining revenue, and industries in structural decline.
This is the one that stings, because it punishes exactly the hustle that built the company. If customers buy because of you, if pricing lives in your head, if every employee reports to you directly, the buyer isn’t buying a business, they’re buying a job with your name on it, and they’ll price it accordingly. The fix takes time, not money: put a second layer of management in place, write down how things work, and get yourself out of day-to-day delivery. Founders who do this eighteen months before selling often move their multiple more than any negotiation could.
Valuation isn’t a single truth; it’s a price from a particular buyer’s seat. A strategic acquirer who can fold your revenue into their existing overhead can afford more than the standalone math supports. A leveraged buyer is constrained by what lenders will finance. A long-term holder like a holding company prices durability (steady cash flow it can hold for decades) and cares comparatively more about structure and continuity than squeezing the last turn out of the multiple. Getting two or three offers isn’t just leverage; it’s information about what kind of asset you’ve built.
Your valuation is not what you need for retirement, not what a competitor sold for in a headline, and not revenue times a multiple you saw on Twitter. Anchoring to numbers like these is the most common reason good businesses sit unsold for years. The market price of a business, like anything else, is what a real buyer with real money will actually pay. Improving that number is a two-year project, not a negotiating tactic.
This article is general information, not legal, tax, or financial advice. Talk to your lawyer and accountant before signing anything.
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