Small Business Valuation: How to Value Your Business Before You Sell

Most trade business owners don't actually know what their company is worth. They either lowball themselves out of years of built-up value, or they walk into a sale expecting a number no buyer will pay.

We've built this guide from real experience — performing valuations, making offers, and buying multiple small businesses ourselves at TradeBrain. Here's exactly how small business valuation works for trade and service businesses, and what actually moves your number.

What Is Small Business Valuation?

Small business valuation is the process of estimating what your company would sell for in the current market. It's not your revenue, and it's not a number you pick because you need it to fund retirement.

For trade businesses specifically, buyers are almost always looking at:

• Adjusted net profit — also called Seller's Discretionary Earnings (SDE)
• Customer concentration — how much revenue depends on one or two clients
• Recurring work — contracts and repeat customers versus one-off jobs
• Documented systems — can someone else run this from your SOPs, or does it live in your head
• Owner dependence — does the business run without you in it

The Three Ways to Value a Trade Business

There's no single formula, but almost every valuation you'll see boils down to one of these three methods.

Method	How It Works	Typical Multiple
Net Profit Method	Average net profit (last 2–3 years) × multiple	3–4×
Revenue Multiple	Annual revenue × multiple	0.3–0.5×
Seller's Discretionary Earnings (SDE)	(Profit + owner's wage) × multiple	2–3×

1. Net Profit Method

Take your average net profit over the last 2–3 years and multiply by 3–4×. Example: $20,000 average net profit × 3 = $60,000 valuation.

2. Revenue Multiple

Service businesses often sell for 0.3–0.5× annual revenue, higher if they're well-run and profitable. Example: $180,000 revenue × 0.4 = $72,000 valuation.

3. Seller's Discretionary Earnings (SDE)

Some sellers add their own wages back into profit before applying a multiple. This only works if your labour is easily replaceable — if you're still swinging a hammer every day, a buyer has to hire someone to do that, which lowers what they'll pay.

What Trade Businesses Actually Sell For

Ranges vary a lot by trade, but as a rough benchmark: owner-operator trade businesses (plumbing, electrical, HVAC, landscaping) with $150K–$500K in SDE typically sell in the 2–3× SDE range in Canada. Businesses with recurring contracts, a management layer, and documented systems push toward the higher end — or beyond it. A business that's 100% dependent on the owner, with no team and no systems, often sells closer to 1–2×, because the buyer is really just buying a job.

Step 1: Understand How Your Business Actually Runs

Before the numbers, be honest about the mechanics:

• What services do you offer, and which ones are actually profitable?
• Are your clients recurring, or mostly one-time jobs?
• Who does the work — you, employees, or subcontractors?
• How involved are you in day-to-day operations?

A business that only runs because you're in it every day is worth less — unless you're willing to stay on through a transition, or you've already hired someone who could replace you.

Step 2: Clean Up Your Financials

You can't get an accurate valuation on messy books. Before you go further:

• Separate your wages (what you earn doing the work) from business profit
• Strip personal expenses out of the books
• Track contractor and subcontractor costs clearly
• Make sure your P&Ls and tax returns actually match your bank statements
• Pull together 2–3 years of clean records for review

Clean books don't just make the valuation easier — they directly increase the number a buyer is willing to pay, because they remove risk.

Step 3: Know Your Real Profit — Not Just Revenue

Revenue is what clients pay you. Profit is what's left after wages, materials, insurance, fuel, and everything else.

• Revenue = total sales
• COGS = wages, materials, contractor fees
• Operating expenses = admin, software, rent, phones
• Net profit = what's actually left over

Your own wages need to be pulled out of profit separately — especially if you're still doing billable work yourself.

Step 4: Are You Selling a Job or a Business?

This is the single biggest lever on your valuation. If the business only functions because you're working in it full-time, you're not selling a business — you're selling a job with some clients attached, and buyers will price it that way.

To increase your value before you list:

• Document your systems and SOPs so someone else can run the work
• Delegate day-to-day jobs to your team, not yourself
• Spend 6–12 months proving the business runs without you in every job

Step 5: Look at the Full Picture — Growth, Risk, and Team

Buyers (and you) should weigh more than the trailing numbers:

• Can the business grow, or has it plateaued?
• Is there room to raise prices without losing clients?
• Would the team stick around through a change of ownership?
• Is the client base loyal and diversified, or concentrated in one or two accounts?

A business with average numbers but a strong team and loyal client base can be worth significantly more than the raw math suggests — and the reverse is also true.

Step 6: When Not to Sell (or Value)

Sometimes the right move is to wait. Hold off if:

• Last year was a fluke — unusually good or unusually bad
• Your books aren't clean yet
• Most of your revenue still comes directly from your own labour
• You're mid-transition — new pricing, team turnover, a system change

Give it 6–12 months to stabilize and grow the number instead of valuing (or selling) at a low point.

Step 7: Protect the Deal With the Right Terms

If you do sell, structure it properly:

• A non-compete clause, so you can't open the same business next door
• A clear list of what's included — equipment, website, phone number, software logins
• A defined transition period to train the new owner
• A retention bonus for key staff to stay through the handoff
• Clear terms on client retention
• Full disclosure of any debts or outstanding tax issues

Step 8: Prepare Your Clients for the Transition

Optional, but it protects the value you just sold. Be ready to introduce the new owner personally, reassure clients the service won't change, and make it obvious you trust the person taking over. A smooth handoff protects the retention numbers the buyer paid for.

Not sure what your business is actually worth, or want help getting it ready to sell, grow, or run smoother? Reach out to TradeBrain and we'll walk through your numbers together.