How much is my small business worth in Ontario?

There is no price list for businesses. But most Ontario owners can get a sensible rough range from a few numbers they already have, then firm it up with their accountant.

The short answer

Most small owner-run businesses sell for a multiple of what the business earns for its owner each year. The multiple is often somewhere between about 1.5 and 4 times, depending on the type of business and how easy it would be for someone else to run. Our free estimate does this math in a couple of minutes, with no sign-up.

Step 1: work out what the business really earns you

Start with your profit before tax. Then add back costs a new owner would not have to pay, such as your own wages, one-time repairs or legal bills, and personal expenses run through the business. This figure is often called normalized earnings or seller's discretionary earnings. Keep notes for every add-back, because buyers will ask. Our guide to add-backs and normalized earnings walks through it.

Step 2: apply a sensible multiple

As a rough guide, these are the ranges our calculator uses. They are rules of thumb, not appraisals:

• Food and hospitality: about 1.5 to 2.5 times yearly earnings
• Retail: about 1.8 to 2.8 times
• Trades and construction: about 2.0 to 3.2 times
• Automotive: about 2.0 to 3.0 times
• Manufacturing: about 2.5 to 4.0 times

A worked example

Say you own a plumbing and heating business in a mid-sized Ontario city. After adding back your own wages, a family vehicle run through the business and a one-time legal bill, it earns you about $160,000 a year. A rough range at 2.0 to 3.2 times would be about $320,000 to $512,000. Vans, tools and parts on hand can move you up or down within the range. A business with two licensed staff who run jobs on their own and a list of repeat service contracts sits near the top. One where the owner quotes every job and holds the only licence sits near the bottom.

What Ontario buyers look at

• Steady numbers over several years. Three years of clean statements matter more than one great year. If a road construction season, a lost contract or a slow year hurt sales, show the whole pattern and explain it.
• Your customers. If one or two customers make up a large share of sales, buyers see risk. A broad base of repeat customers, or written service contracts, is worth more.
• Your lease. Check the term, renewal options and the assignment clause early, especially in larger cities where rents are high and moving is costly. See your commercial lease when selling.
• Staff who will stay. A settled, trained team, and any staff who hold the trade or professional licences the work needs, are worth a lot to a buyer. See what to tell employees.
• How much depends on you. If customers and suppliers only deal with you, the business is worth less to a stranger. Writing down how things are done helps.
• Licences and permits. Liquor, food premises, trade and municipal licences that can be transferred or re-issued without trouble reduce a buyer's risk. See transferring contracts, licences and permits.
• Location. The Greater Toronto Area, Ottawa, Hamilton and the Kitchener-Waterloo area have more buyers. In smaller towns and the north the pool is smaller, but a local buyer, an employee or a family member may value your reputation highly.

Things that do not change the value as much as owners expect

• What you paid for the business or what you've invested in it. Buyers pay for future earnings, not past spending.
• Asking prices you've seen online. Listing prices are often higher than what businesses actually sell for.
• Equipment at replacement cost. Used equipment is usually counted at what it would sell for today, and it's often already part of the earnings-based price.

Tax and HST are separate questions

What a business is worth and what you keep after tax are different numbers. Whether you sell assets or shares, and how the price is split between equipment, inventory and goodwill, changes the tax result. Ontario uses the 13% harmonized sales tax (HST) instead of a separate provincial sales tax, and an asset sale may attract HST unless buyer and seller qualify to make a joint election. Read taxes when you sell a small business and asset sale vs share sale, then ask your accountant.

Getting a firm number

Use the rough range to decide whether selling makes sense now. Then ask your accountant, or a Chartered Business Valuator for bigger or more complicated sales. Ontario's Small Business Enterprise Centres also offer free advice in many communities. For the methods in more depth, read what is my small business worth? and EBITDA multiples explained. When you're ready, see how to sell a business in Ontario without a broker.