Business Valuation

A business valuation is a formal estimate of the economic value of a business or ownership interest in a business. In Canada, professional valuations are performed by Chartered Business Valuators (CBVs) credentialed by the CBV Institute.

The three primary valuation approaches are the income approach (capitalizing or discounting future earnings), the market approach (comparing to prices paid in similar transactions), and the asset approach (appraising tangible and intangible assets net of liabilities). Most Canadian small and mid-market business sales use earnings-based methods — applying an EBITDA or SDE multiple derived from comparable transactions.

The standard of value in most Canadian business sale contexts is fair market value: the price a knowledgeable, willing, and unrelated buyer would pay a knowledgeable, willing, and unrelated seller in an arm's-length transaction (Henderson Estate v. MNR).

See also: EBITDA, SDE, Fair Market Value, CBV, Comparable Transaction, Discounted Cash Flow.