Business valuation is the process of determining what a business is worth, and for most incorporated Canadian owners, the answer is both more specific and more actionable than expected.

Three primary approaches apply. The income approach values the business on its earning power, typically applying a multiple to normalized EBITDA. The market approach compares the business to recent transactions involving similar companies. The asset approach values the underlying assets directly and is most relevant for asset-heavy businesses or those generating limited earnings relative to their asset base.

For most owner-managed businesses in Canada, the income approach dominates. The multiple applied reflects the buyer’s perception of risk, growth potential, management depth, customer concentration, and owner dependence. Two businesses with identical EBITDA routinely receive multiples that differ by a factor of two or more depending on those qualitative factors. Most owners are surprised by their first formal valuation, either the number is lower than expected because of factors not previously considered, or it is higher because of value that had not been quantified. Either outcome is useful. Knowing the number years before a planned exit is what creates time to change it.

A formal valuation is the starting point for every value growth engagement. See how Wefinx approaches value growth.

← Back to glossary