How much is my small business worth? Why clean books raise your sale price

You do not need a sale date on the calendar to wonder what your business is worth. Sole proprietors in Canada often start with a feeling, then learn that a buyer wants records they can check. This guide explains the words people use, and why tidy books usually support a stronger conversation than a hopeful guess.

This guide is for general information only. It is not a business valuation, and not tax, legal or accounting advice. Confirm with the Canada Revenue Agency or a qualified professional before you make decisions.

Buyers buy numbers, not a feeling

A buyer is not paying for how hard the year felt. They want to see what the business can earn after they step into your role, and they want that picture to come from records, not from memory. If the only version of the story is in your head, they have to guess. Guesses tend to be cautious.

They look at income, at the costs that would stay, and at the work that still has to be done once you leave. A business that runs on your personal relationships and your unpaid evenings looks different from one with written prices, repeat customers, and a system someone else can follow. Neither kind is wrong. The second kind is easier to price, because less of the earning power walks out with you.

Clean monthly records let a buyer compare one year with the next. Gaps, round numbers, and expenses that mix the household with the business make that comparison harder. When the comparison is hard, the offer usually gets smaller, slower, or it does not come at all. If you are thinking about the sale itself, not only the price, read selling a sole proprietorship in Canada.

SDE vs EBITDA in plain English

People who buy very small, owner-run businesses and people who buy larger firms do not always use the same words. Two terms come up a lot. They are ways of describing earnings. They are not a valuation, and they are not formulas to apply on your own.

Seller's discretionary earnings (SDE)

Seller's discretionary earnings, often shortened to SDE, is the measure you will hear most often for a small business that depends on the owner. You start from profit. Then you add back the owner's pay, personal costs that were run through the business, and one-off costs a new owner would not have. The idea is to show the cash the business produced for the owner, before a buyer decides what they would pay themselves.

Add-backs only help if you can point to them. A personal phone bill, a family cost coded as travel, or a one-time repair should be easy to find in the books and easy to explain. If you cannot show the receipt and the reason, a careful buyer will leave the cost in. Your profit will then look smaller than you think it is.

EBITDA

EBITDA means earnings before interest, tax, depreciation and amortization. It is more common when a business is larger and has managers, loans, and formal accounts. A sole proprietorship often has little of that machinery. You may still hear the word if a buyer or an accountant works mostly with incorporated companies. Do not stretch your books to look like EBITDA if the useful picture is SDE. Ask which measure they actually want, and let them say why.

People often talk about value as a multiple of SDE. That multiple is not a fixed rule. It moves with the industry, with risk, and with how much of the work depends on you. A business that would stall if you stopped answering the phone is not the same as one with staff, contracts, and a process a new owner can follow. This page does not give a typical multiple, and it does not give a formula. If you need a number you can rely on, that is a job for a valuator or an accountant who can see your records.

What buyers usually ask for

Expect a request for two or three years, not a single good month. Buyers and their accountants usually want a pack they can rebuild the year from:

• Income and expense records
• GST/HST and QST returns or summaries, if you were registered
• The figures you used for your T2125
• Bank statements
• Contracts
• Vehicle and home office logs, if you claimed those costs

The point of the pile is to let someone else trace a total back to a receipt. See our checklist of records buyers want and start filling gaps before anyone asks. A buyer who has to wait weeks for a bank statement will wonder what else is missing.

Why clean books raise your sale price

Messy records do not only slow a sale. They give a buyer a reason to lower the price or to walk away. If invoices are missing, if sales tax was guessed, or if personal spending sits in the same column as supplies, the buyer has to assume the worst about the profit. A lower assumption becomes a lower offer.

Consistent monthly logs fix a lot of that. A buyer can see that January through December was recorded the same way, not reconstructed in a weekend. Clear GST/HST tracking shows what you collected, what you paid, and what was still owing. Expenses sorted by T2125 line match the way a Canadian return is already organized, so an accountant can follow a total without translating a private system.

None of this sets the price by itself. It makes the price easier to trust. Trust is what keeps a number from being cut at the last minute. If you want a plain check on whether sales tax even applies to a sample invoice, the sales tax calculator is a separate tool. The GST/HST registration checker is only a threshold check, not a judgment about your sale.

When to hire a valuator or accountant

Hire a valuator or an accountant when the sale is large, when you have a partner, when you are transferring the business inside a family, or when you are planning the tax side of the deal. Those situations have rules this guide does not try to cover. A professional can tell you which records are enough and which number is supportable.

Do not treat a blog, a spreadsheet, or a friend's sale as your valuation. You can still prepare before that meeting. Finish the logs, separate personal costs, and write down what a new owner would actually be buying. Bring questions, not a number you hope they will stamp. The earlier you ask, the more time you have to fix a gap a buyer would otherwise price against you.

Related guides and tools

• Selling a sole proprietorship in Canada
• Records buyers want when you sell
• Sales tax calculator
• GST/HST registration checker
• Profit margin calculator
• Getting started with the bookkeeping tracker

FAQ

This guide is for general information only. It is not a business valuation, and not tax, legal or accounting advice. Confirm with the Canada Revenue Agency or a qualified professional before you make decisions.