What multiple of earnings should I pay to buy a small business in Canada?
Small businesses in Canada typically sell for 2–4× annual EBITDA or seller's discretionary earnings (SDE), with the specific multiple varying by industry, growth trajectory, and deal size.
Typical earnings multiples for small business acquisitions in Canada
Main Street businesses (under $1M in transaction value) most commonly sell for 2.0–3.5× SDE, while lower middle market businesses ($1M–$5M transaction value) more frequently use EBITDA multiples in the 3–5× range.
Asking prices on business-for-sale marketplaces often list multiples 0.5–1× above actual closed transaction multiples, reflecting seller optimism and negotiation starting positions rather than market-clearing prices.
What earnings metric buyers and sellers use
Seller's discretionary earnings (SDE) is the standard earnings metric for owner-operated businesses where the owner's compensation and discretionary expenses are added back to net income. EBITDA is used for businesses with professional management and multiple employees.
Vertical-specific variations in multiples
Service-based businesses with recurring revenue (SaaS, professional services, agencies) commonly command multiples of 3–6× EBITDA, while asset-heavy or commodity businesses (manufacturing, distribution, retail) often trade at 2–3× EBITDA.
Technology-enabled businesses (e-commerce, software, digital marketing) in the Canadian small business market frequently command multiples of 3.5–5× EBITDA, exceeding traditional retail or service multiples by 1–2×.
Franchise businesses often trade at narrower multiple ranges (2.5–3.5× SDE for QSR franchises, for example) due to more standardized operations and comparable transaction data.
How deal size affects the multiple
Businesses with consistent revenue growth above 15% annually may command a premium of 0.5–1.5× above sector medians, while declining revenue typically results in discounts of similar magnitude.
When to pay above or below the typical range
Businesses with strong intellectual property, proprietary processes, or defensible competitive moats can justify multiples at the high end of sector ranges or above. Commoditized businesses with low switching costs trade at the low end.
Businesses with significant customer concentration risk (one customer representing >25% of revenue) typically sell at a discount of 0.5–1× below comparable businesses with diversified customer bases.
Regional differences within Canada
Ontario and Quebec markets show multiples consistent with national medians for most verticals, reflecting deeper buyer pools and more active M&A markets in those provinces.
Multiples in Western Canada (Alberta, British Columbia) tend to align closely with national medians, while Atlantic Canada sometimes sees slightly lower multiples (0.25–0.5× below national median) due to smaller buyer pools and lower population density.
This article is for informational purposes only and does not constitute financial, legal, or business advice. Every business acquisition is different. Before making decisions about valuation, pricing, or engaging an advisor, consult a qualified professional familiar with your specific situation.
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