The short answer
Small businesses are priced on what they earn, not on what they sell. The Business Development Bank of Canada (BDC) says the multiple could range between three and six times EBITDA for a small to medium sized business, and that it varies by industry and market conditions. EBITDA is earnings before interest, taxes, depreciation and amortization.
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Is my business worth three times profit?
It might be, but three times is where one published range starts, not a rule. BDC, the Business Development Bank of Canada, says the multiples vary by industry and could range between three and six times EBITDA for a small to medium sized business, depending on market conditions.
BDC adds that many other factors can change which multiple is used, including goodwill, intellectual property and the company's location.
So the honest answer has two parts. Which profit does the multiple apply to? And which multiple fits your business? The next section gives the formula, and the sections after it take the two parts in that order.
What is the formula for valuing a small business?
The starting formula is earnings times a multiple. BDC says the most common method for setting a fair sale price is to calculate a multiple of EBITDA, and that for a small to medium sized business the multiple could range between three and six times, depending on market conditions.
In plain words: take the yearly earnings a buyer will count, then multiply them by the number that fits your industry and size. That number is the multiple, and a multiple of EBITDA is called an EBITDA multiple. The worked example further down runs the arithmetic at three times and at six times.
BDC adds that a valuation multiple can also be based on revenue or other measures. Sales alone cannot set the price, because two businesses with the same sales can keep very different amounts after costs, so the sections that follow start with which earnings to count.
What counts as profit when a buyer prices a business?
Buyers do not price the profit line on your tax return. They price what the business earns, and there are two common ways to count it.
The first is EBITDA: earnings before interest, taxes, depreciation and amortization. BDC calls it a measure of a company's ability to generate operating earnings, and it is the figure BDC's range is built on. For a business the owner runs, it is counted after paying someone to do the owner's job.
The second is owner earnings, also called seller's discretionary earnings or SDE. It is your profit, plus your own pay, plus the perks that run through the business. It shows what the business earns for whoever owns it.
| Measure | EBITDA | Owner earnings (SDE) |
|---|---|---|
| What it counts | Earnings before interest, taxes, depreciation and amortization, after someone is paid to do the owner's job | Profit, plus your pay, plus the perks that ran through the business |
| The multiple that goes with it | BDC's three to six times, for a small to medium sized business | A lower multiple, because the figure is bigger |
Always ask which earnings a multiple was applied to. A multiple means little without its earnings attached.
How do I work out my owner earnings?
Add four numbers from your financial statements: the net profit, your pay, your personal perks and the costs that will not repeat.
- Net profit. The bottom line on your statements.
- Your pay. What you pay yourself, in any form.
- Personal perks. The vehicle, phone and travel that run through the business.
- Costs that will not repeat. Real expenses this year that will not come back next year.
The total is your owner earnings, the number a buyer is actually buying. Keep the statement behind every item you add back, so you can show where each figure came from.
Know your owner earnings? Your free sale plan starts there.
Get my free sale planHow do valuators put a price on a business?
BDC says professional valuators typically use a mix of three methods, and compare what each one gives.
| Method | What it does | What BDC says about it |
|---|---|---|
| Earnings based | Applies a multiple to earnings, such as EBITDA | Commonly used for established businesses that earn reasonable returns and are worth more than their assets alone |
| Market based | Checks what comparable companies sold for | The multiple used varies with the industry, the size of the company, market conditions and comparable sales |
| Asset based | Adds up the value of tangible and intangible assets | Typically used when a business's value sits in its assets, when it earns poor returns, or when it is expected to be liquidated |
BDC adds that each method may give a different value, and that the highest of them usually reflects the fair market value of the business.
Why does the multiple change from one industry to another?
Because the multiple depends on many things, and the industry is one of the first. BDC lists the industry and the size of the company, then market conditions and what comparable businesses have sold for.
Inside one industry, the business matters too. A company with steady maintenance contracts and a crew that runs without the owner looks different to a buyer than one that stops when the owner does.
Be careful with industry tables online. Many of them are built from American sales. That is why this guide prints no list of multiples by industry.
To see a range for your own industry, ask for your free sale plan. It gives you an estimated range and an honest read on whether the business will sell.
What is a business with $1,000,000 in sales worth?
That depends on what is left after costs. Sales do not set the price. Earnings do.
Take two businesses that each sell $1,000,000 a year. One keeps $100,000 as EBITDA. The other keeps $250,000. These figures are made up, to show the arithmetic. BDC's general range for a small to medium sized business is three to six times EBITDA.
| Figure | Business A | Business B |
|---|---|---|
| Yearly sales | $1,000,000 | $1,000,000 |
| EBITDA | $100,000 | $250,000 |
| At three times | $300,000 | $750,000 |
| At six times | $600,000 | $1,500,000 |
The sales are identical, and the gap between the two is $450,000 at the low end and $900,000 at the high end. Your own multiple will not be BDC's general range: it depends on your industry, your size and the factors in the next section.
What moves my number up or down inside the range?
How much of the business a buyer can keep when you leave. Two businesses with the same earnings can sell for very different prices.
Pushes the multiple up
- Recurring revenue, such as maintenance contracts and repeat customers
- Staff and systems that run the business without you
- Clean books: statements and filed taxes that match reality
- Owned equipment in good repair, documented
- A diverse customer base, with no single client dominating
- A lease a buyer can take over, or owned premises
Drags the multiple down
- Everything depends on the owner personally
- One customer making up most of the revenue
- Messy or informal books, or cash that never hit a statement
- Aging equipment with deferred maintenance
- A lease renewing month by month on an essential location
- Declining revenue with no explanation ready
Most of the left column can be built, and most of the right column can be fixed, before you sell. That is a reason to start early.
Why a range and not one number?
Because nobody can tell you the final price in advance. BDC says a valuator's figure is just a guideline for how to approach negotiations in a sale, and that the final price is often different.
BDC names some of the things that move it: your eagerness to sell, the buyer's strategic interests, available financing, the buyer's review of your records, and how smoothly the company can pass to new ownership.
That is also why an estimate is not an appraisal. Ours is a pricing opinion for selling, not a certified appraisal. If you need an objective figure, for example to judge a buyer's offer, BDC suggests hiring a chartered business valuator.
Questions owners ask
What does EBITDA mean?
What is SDE?
Do buyers pay a multiple of sales?
Is a valuation the same as an appraisal?
Do I need a chartered business valuator?
Ready to try the method on your own numbers?
Get my free sale planSources
- How to value a business you'd like to acquire, BDC, updated 28 July 2025, read 4 November 2026.
- Business valuation: What's your company worth?, BDC, updated 4 October 2022, read 4 November 2026.
- How the free estimate works, Succession Market, valuation page, read 21 October 2026.
- How the free sale plan works, Succession Market, sell page, read 21 October 2026.
Who publishes this
Succession Market publishes this guide from Kelowna, British Columbia. We help owners navigate the sale of their business.
This guide is general information, not tax or legal advice for a particular sale. Your lawyer papers the deal and your accountant advises on tax. Both are yours to choose.