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

If you're thinking of selling, understanding small-business valuation is critical. Most trade business owners don’t know what their company is actually worth — and many either undervalue it or expect far too much.

Whether you want to sell, bring on a partner, or simply gain a clearer understanding of your business’s value, determining a small business's actual value can feel overwhelming.

We’ve created this guide based on our real-world experience performing small-business valuations, making offers, and ultimately purchasing multiple small businesses.

What Is Small Business Valuation?

Small business valuation is the process of determining your company's value in the current market. It’s not just about revenue. Buyers look at profit, systems, customer concentration, risk, and how dependent the business is on the owner.

In trades businesses, especially, valuation often depends on:

• Adjusted net profit (also called Seller’s Discretionary Earnings)

• Strength of your customer base

• Recurring work or contracts

• Documented processes and systems

• Whether the business runs without you

Step 1: Understand How Your Business Works

Before we talk numbers, we need to talk about how your business runs:

• What services do you offer?
• Are your clients recurring or one-time?
• Who does the work — you, employees, or contractors?
• How involved are you in daily operations?

A business that depends entirely on you is harder to sell — or worth less — unless you’re planning to stay on or hire someone to replace you.

Step 2: Clean Up Your Financials

Before you can value your business, you need to separate your personal income from your business performance.

Here’s what to clean up:

• Separate your wages (what you earn doing the work) from your business profits
• Remove personal expenses from your books
• Track contractor costs clearly
• Make sure your financial statements (P&Ls, tax returns) match your bank statements
• Gather 2–3 years of records for review

Want a better valuation? Clean books = higher value.

Step 3: Understand Your Profit

Revenue is what your clients pay you. Profit is what’s left after paying your team, software, insurance, fuel, and everything else.

A quick breakdown:

• Revenue = Total sales
• COGS (Cost of Goods Sold) = Wages, materials, contractor fees
• Operating Expenses = Admin, software, rent, phones
• Net Profit = What’s left over

Owner wages need to be separated from profit — especially if you’re on the tools.

Step 4: Try a Few Valuation Methods

There’s no exact formula, but here are three common ways to estimate what your business might be worth:

1. Net Profit Method

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

2. Revenue Multiple

Service businesses often sell for 0.3 to 0.5 times their 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 include their own wages + business profit in the valuation. This only works if your labour can easily be replaced. If you still do the work, a buyer has to hire someone, which lowers the value.

Step 5: Ask: Are You Selling a Job or a Business?

This is the most important question. If the business only runs when you are working full-time in it, it’s not a business — it’s a job with clients.

To increase your value:

• Start documenting systems and SOPs
• Delegate more work
• Remove yourself from day-to-day jobs before you sell

Step 6: Look at the Bigger Picture (Opportunity + Risk)

Buyers (and you) should look beyond numbers:

• Can the business grow?
• Can prices be raised?
• Can systems reduce expenses?
• Is the team likely to stick around?
• Is the client base stable and loyal?

Even a small business with average numbers can have a huge upside if the systems, team, and client base are solid.

Step 7: When Not to Sell or Value

Sometimes it’s better to wait.

Don’t try to sell or value your business if:

• Your last year was a fluke (unusually good or bad)
• Your books are messy
• Most of your revenue comes directly from your labour
• You’re going through a major change (team turnover, new pricing, etc.)

Instead, take 6–12 months to clean things up and grow the value.

Step 8: Protect the Deal (If You’re Selling)

If you do sell, set it up properly:

• Non-compete clause (so you can’t start the same biz next door)
• List of what’s included (gear, website, phone number, software, logins)
• Clear transition period (training the new owner)
• Bonus structure for staff to stick around
• Agreements about client retention
• Disclosure of debts or tax issues

Don’t wing it. Structure it.

Step 9: Talk to Your Clients

This is optional — but smart.

If you plan to sell, be prepared to:

• Introduce the new owner
• Reassure that the service will stay the same
• Make it clear you trust them
• Share contact details for a smooth handoff.

This maintains trust and stability in business during the transition.

Final Tip: Get a Second Set of Eyes

If you’re not sure what your business is worth — or want to clean it up before you sell — that’s exactly what we help owners with. We’ll walk through your numbers, identify growth opportunities, and get your business ready to sell, grow, or run smoother.

Want help? Reach out.