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.

Thinking of selling a trade or service business in BC? We buy owner-run businesses, keep the staff and take over on your timeline. See how selling to TradeBrain works, or read our step-by-step guide on how to sell a small business in BC.

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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.

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.

SDE vs. EBITDA: Which One Actually Values Your Business

These are the two numbers every buyer runs a multiple against, and mixing them up will throw your number off by a lot.

SDE (Seller's Discretionary Earnings) is the standard for owner-operator businesses:

SDE = Net profit + your salary and draws + personal expenses run through the business (vehicle, phone, travel) + interest + one-time, non-recurring costs.

EBITDA is the standard once a business has moved past being a one-person show:

EBITDA = Net profit + interest + taxes + depreciation + amortization. It does not add back your own wage, because it assumes a buyer hires a manager to replace you at market pay.

Rule of thumb: if you're still swinging a hammer or driving the truck every day, price your business on SDE. Once you've got a foreman or ops manager running jobs without you, buyers start pricing it on EBITDA instead, comparing you to other companies on an apples-to-apples basis.

Worked Example: Valuing a $600K Electrical Contractor

This is a hypothetical example built to show the math, not a real client or deal.

Say an owner-operated electrical contracting business does $600,000 in annual revenue. Here's how the owner gets from tax-return profit to SDE:

Now apply a multiple. If the owner does most of the electrical work personally with no crew, a buyer prices that closer to 1.5–2× SDE: roughly $255,000–$340,000. If the business has two licensed electricians on staff, a documented process for quoting and scheduling, and a few recurring commercial maintenance contracts, the same $170,000 SDE could reasonably support 3–4×: roughly $510,000–$680,000. Same revenue, same net profit. Nearly double the sale price, because the business doesn't depend on one person anymore.

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.

Treat these as starting points, not fixed rules. Goodwill, customer concentration, lease terms, and how replaceable you personally are all move the number up or down within the range.

Rough Valuation in 5 Steps

Want a working number today, not a formal report? Run this:

1. Pull your last 2–3 years of net profit from your actual tax returns, not your bookkeeping software's dashboard.
2. Add back your own wage and personal expenses run through the business to get SDE (see the formula above).
3. Average the last 2–3 years of SDE, weighting the most recent year higher if the trend is climbing.
4. Pick a multiple from the table above based on how dependent the business is on you and whether the work is recurring.
5. Multiply SDE × multiple for your range, then sanity-check it against what similar businesses in your trade have actually sold for.

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. If your P&L doesn't already make this easy to see, our guide to reading a P&L walks through exactly where each of these lines sits.

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. Our exit planning guide covers the longer runway version of this if you're 1–2 years out from selling rather than listing now.

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.

Canada-Specific Tax Rules Before You Sell

The Lifetime Capital Gains Exemption (LCGE)

If you sell shares of a Canadian-controlled private corporation that qualifies as a Qualified Small Business Corporation, you can shelter a chunk of the capital gain from tax entirely. Canada.ca confirms the LCGE at $1.25 million per person for 2025, and it's indexed to inflation starting in 2026 — most accounting firms are estimating roughly $1.27 million for the 2026 limit, though CRA hadn't posted the official indexed figure at the time of writing. Only 50% of a capital gain is normally taxable, so the exemption can shelter well over $600,000 of actual tax.

To qualify, the shares generally need to have been owned for at least 24 months, and the company has to pass an active-business-asset test at the time of sale. This needs to be planned with your accountant before you list, not after an offer lands.

Share Sale vs. Asset Sale

A share sale means the buyer takes over your corporation itself. You're taxed on a capital gain, only 50% of which is taxable, and it's the only structure that lets you use the LCGE.

An asset sale means the buyer picks the equipment, contracts, and goodwill they want, and your corporation keeps the shell. The proceeds are taxed as income to the corporation, not a personal capital gain, so there's no LCGE. Buyers often prefer asset sales because they can depreciate what they bought and skip your corporation's old liabilities; sellers usually prefer share sales for the tax break. Expect this to be one of the first things negotiated, and get your accountant involved before you agree to either. See our Canadian small business tax basics guide for how this fits your broader tax picture.

When to Get a Chartered Business Valuator (CBV)

The multiples in this guide get you a real working number. A CBV report gets you a defensible one — the kind a bank, the CRA, a divorce lawyer, or a skeptical buyer's accountant won't argue with.

Get one if you're selling to an outside buyer rather than someone you know, if there's a shareholder dispute, or if the deal is big enough that a couple points of multiple is real money. A full comprehensive CBV valuation for an owner-managed business typically runs $12,000–$30,000 or more depending on complexity; a lighter "calculation of value" engagement costs less. For a straightforward sale under a few hundred thousand dollars, a broker's opinion of value is often enough. We've sat on the buyer's side of this exact process too (TradeBrain acquired Doggy Tales Whistler in January 2026), so we know which reports actually move a buyer's number and which ones just look impressive.

Ready to sell, or close to it? Talk to us about buying your business. Want help getting it ready to sell, grow, or run smoother first? Reach out to TradeBrain and we'll walk through your numbers together.