The most common question I get asked about exiting a business is, “How do I know what my business is worth?”
Determining the value of the sale of a business is hard to do when you have not done anything to prepare the business to be sold. People often say to me, “I don’t think my business would be worth anything.” Again, without putting effort into preparing a business for your exit, there is likely little or no value in the business.
The price of sale relies heavily on the value of the business. The value of the business relies heavily on the items in the business that are easily transitioned to the next owner. Let’s look at three factors that can affect both your business growth and your future exit from your business.
1. Valuation
First, what is a “Small Business”? The government of Canada uses this term to include any firm with less than 100 paid employees in the manufacturing sector and less than 50 paid employees in all other sectors. Other entities put different limiters on it. At our local Chamber, they describe small business as under $1,000,000 in annual revenues. This is a big discrepancy in definition as the difference between the annual revenue of a profitable, 99-employee manufacturing company and the annual revenue of a profitable, 10-employee online service-based business, would likely be multiple millions of dollars.
If your business is a service-based business with under 20 employees, and you have an annual revenue of under $1M, you likely don’t earn enough to cover the cost of your employees, let alone all the other expenses in the business.
It is more difficult for a small business to find a business valuer than it is for larger businesses. Companies like BDC and KPMG work with Small and Medium-sized Business (SMB), but they really work with the largest of small businesses, mainly because their own costs to do a valuation is often more than the sale would be worth to the seller. So, owners of smaller businesses need to find a different way to determine their business value.
Do This: Start by having your accountant calculate your EBITDA value. This is a measure of your company’s ability to make money and is a way to benchmark your business in its industry, so it can be easily compared to other equivalent type businesses. It is like a window into how well your business runs. It does not show if you are earning a profit, just that it is able to earn income.
2. Profit
Of course, a business that is making a profit will be more appealing to a buyer, as it gives them some idea how long it will take to earn back their investment. Ideally, it would be good for a buyer to be able to earn back their investment in as few years as possible. But, just because you have a profit now, does not make your business valuable unless there is a history of profit. With historical financial reporting showing a profit over many years, you are able to ensure a more accurate proforma prediction of future earnings.
Do This: Start now to create a business history that will best predict the future of the business profitability – Because, it takes more than 6 months to show 3 years of profit value in the company.
3. Other Factors
There are may other factors that can make your business more valuable or lest valuable to a buyer. One is ‘fit’.
Let’s say there is a business buyer, with a company that sells online training, and your company sells coaching programs that helps people learn new skills. The buyer may be more interested than others in your company, as your key service could add value to their service offerings.
Do This: Research what types of businesses are competitors, or closely aligned with your business industry, to determine who may be a good fit as a potential buyer. Then you can start determining the value to them.
Understanding how your business EBITDA compares to others like you, gives you a foundation for your selling price. Knowing how easily someone will be able to earn their money back, will give you the insight into what buyers may expect from the business, and knowing how your business aligns with the buyer, in the ‘other factors’ area, gives you an idea of who would more likely be interested in buying your business. All these factors lend to the value of the business in different ways.
Of course, price is not that simple. There are assets, systems, relationships, good will, and other factors, that can affect the value of your business. Starting with these three factors will give you an understanding of what your business value may be worth. The price is not just a number, it is how a buyer may perceive the value to align with their own investment needs.
Additional reading from BDC
- https://www.bdc.ca/en/articles-tools/start-buy-business/buy-business/how-value-business-youd-like-acquire
- https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/ebitda
This article is 100% original content – The articles you read in this blog are 100% created by Barb Stuhlemmer, not by AI. © 2026 Barb Stuhlemmer
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