Business Valuation

At Business Finders Canada, we require a Business Market Valuation to determine the Probable Selling price before listing every business.

It’s entirely natural for business owners to place a higher value on their enterprises than a potential buyer might. This often stems from years of personal investment and emotional attachment to the business. However, it’s crucial to recognize the importance of an accurate valuation, not just for setting a realistic selling price but also for making informed decisions across various scenarios—be it buying, selling, or liquidating a business.

When you’re in the position of buying or selling a business, emotional detachment becomes a critical factor. Setting aside personal feelings is essential for conducting an unbiased business valuation, which in turn establishes a realistic and competitive selling price.

The landscape of business valuation is diverse, offering multiple methodologies that can be employed. The suitability of each method can vary depending on several factors, such as the industry of the business, its size, and the specific circumstances of the sale. By choosing the most appropriate valuation method for your situation, you align your business strategy with market realities, thereby enhancing your negotiating position and increasing the likelihood of a successful transaction.

Why do we do a Business Valuation? 

The Valuation sets Business Finders Canada apart because:

  • It means we know the value of a business before we put it on the market.
  • We can evaluate an offer and negotiate a strategic sale of a business.
  • It shows the opportunity to improve both the business’s strength and value.
  • Few sellers have any idea what their business is worth; This step allows them to decide upfront, before the business broker puts in many hours of work, whether they are serious about selling. 

Our business valuations are based on multiple factors including actual cash flow and hard assets. We then apply an industry specific formula to determine the market value. This is a 10-20-page comprehensive report showing the actual market value.

What Valuation Approach do we use?

There are several different methods used to value businesses in today’s marketplace, depending upon the size, profitability, and nature of the business being valued.  We generally use the Market Approach to value a business and determine the highest selling price with the highest likelihood of completing a sale.  Using the Market Approach, we compare the subject business to other sales of similar businesses using multiple factors:

  • Seller Discretionary Income (SDE)
  • Earnings Before Interest, Tax, and Depreciation/Amortization (EBITDA)
  • Revenue

Who Needs a Business Market Evaluation?

  • A Business Owner interested in selling in the next 12 months.
  • A Business Owner already selling without a business valuation.
  • A Business Owner considering expansion financing.
  • A Business Owner who just wants to know what his or her business is worth.

Probable Selling Price (PSP): An Opinion of Value 

  • Definition: The Probable Selling Price (PSP) serves as a comprehensive valuation indicator, delineating the upper limit a prospective buyer is likely to offer.
  • Comprehensive Analysis: PSP provides an exhaustive evaluation of your business’s intrinsic and market value.
  • Accuracy: Employs a blend of advanced methodologies, resulting in a valuation that surpasses market alternatives in precision.
  • Market Superiority: Our PSP document stands as a more comprehensive and accurate valuation tool compared to existing market offerings.

To delve deeper into how the Probable Selling Price can serve as a strategic asset in your business sale, Learn More.

What Information Do We Require to Conduct a Business Valuation?

The more detailed information we receive will result in a more accurate estimate of value and assists in creating a better advertising/buyer package to sell the subject business faster.  Better information mitigates negative surprises from Buyer Due Diligence and more detailed add-back information means higher selling prices.

In order to prepare a business for sale and provide buyers with critical information to help their buying decisions, we will need:

  • 5 years of Financial Statements (Balance Sheet & Income Statement) if available.  (or tax returns if financial statements are not prepared).
  • Year to date Income Statement to the most recent complete month end with comparative balances for the same period, prior year.
  • Value of significant equipment at current market value.  (What you could sell it for today)
  • List of the leased equipment (if applicable) and copies of the related leases.
  • Copy of any Rental or Lease agreements for premises and/or Property assessments
  • Value of inventory at cost (not retail)
  • A list of Owners & Family members involved in the business, the work they do, the wages (T4) paid each year, and the market rate for the work performed by each person
    • A list of any Unnecessary, One-Time, Non-recurring Revenues or Expenses included in your financial statements each year, such as: 
      • One-time consulting expenses
      • One-time gain/loss on the sale of an old piece of equipment,
      • Vehicle expenses when a vehicle is nice but not necessary to the business (if you wouldn’t provide a vehicle to an employee doing the same job 
      • Any other applicable items.