Resources · Business valuation
What’s a business actually worth?
Whether you’re selling, buying in a partner, rolling assets into a corporation, or just planning ahead, it all starts with one hard question: what is the business worth? There’s no single answer — but there are three well-worn methods, and they usually point to the same neighbourhood. Here’s how valuation works in plain language, worked through with a landscaping company.
First, the why
Value isn’t just for selling
A defensible number matters in more moments than most owners expect — and the reason for the valuation can change the answer.
You need a value when you sell the business or buy one, when a partner joins or leaves, when you incorporate and roll assets in under Section 85, when a bank wants security, and in estate planning or a marriage breakdown. “Fair market value” is the standard — what a willing buyer and willing seller, both informed and at arm’s length, would agree to. But a strategic buyer chasing your customer list may see more than a financial buyer chasing a return, which is why valuation is a considered estimate, not a fixed fact. None of it holds up without clean, reliable books underneath.
The methods
Three ways to value a business
Every valuation leans on one of three lenses — what the business earns, what it owns, or what similar businesses sold for. Here’s each one, worked through for Green Valley Landscaping: about $400,000 of annual revenue and $58,000 of normalized profit after paying the owner a fair wage.
Approach 1 · what it earns
Income
Best for: profitable, ongoing operating businesses. The most-used method.
Normalized earningsafter a market-rate owner wage$58,000
× multiple ≈ 4 (25% cap rate)
Value$232,000
Approach 2 · what it owns
Asset
Best for: asset-heavy, holding, or low-profit businesses. A floor value.
Assets at fair valueequipment, truck, land, inventory$182,000
Less: business debts−$0
Value$182,000
Approach 3 · what others paid
Market
Best for: a sanity check against real-world sales & industry rules of thumb.
Annual revenue$400,000
× industry rule ≈ 0.58
Value≈ $232,000
The three rarely land on the exact same number — that spread is normal, and reconciling it is the real skill. For a profitable business that could run without its owner, the income approach usually carries the most weight, with the others as a check. The asset approach sets a floor. And notice the gap: the income value ($232,000) sits $50,000 above the value of the identifiable assets ($182,000). That difference is the business’s goodwill.
The multiple isn’t fixed
What moves the number up (or down)
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Does it run without you?
A business that depends entirely on the owner is risky to a buyer and earns a lower multiple. Trained crews, systems and documented processes lift it.
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Recurring, sticky revenue
Contracts and repeat customers are worth far more than one-off jobs. Predictable revenue — and no single client dominating — raises the multiple.
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Clean, believable books
A buyer pays for earnings they can trust. Tidy financials and clear add-backs shrink the risk discount; messy books invite lowball offers.
The intangible bit
How goodwill is calculated
Goodwill is the slice of value that isn’t in any one asset — reputation, repeat customers, a trained crew, the phone that keeps ringing. You can’t point to it, so it’s calculated. Two common methods:
Method 1 · what’s left over
The residual method
Value the whole business, subtract everything you can point to — goodwill is the premium on top.
Total business value$232,000
Less: identifiable assetsequipment $32k · land $110k · truck $28k · inventory $12k−$182,000
Goodwill$50,000
Method 2 · earnings above the assets
The excess-earnings method
Only the profit beyond a fair return on the tangible assets is attributable to goodwill.
Normalized earnings$58,000
Less: fair return on $182k of assetsat ~10%−$18,000
Excess (intangible) earnings$40,000
× ~1.25 (higher-risk multiple)
Goodwill≈ $50,000
The two won’t always agree to the dollar — the excess-earnings multiple is lower than the whole-business multiple because intangible earnings are riskier and vanish faster if the owner walks. A valuator reconciles them. And because goodwill you built (rather than bought) has a nil tax cost, that whole $50,000 becomes an accrued gain — which is exactly what a Section 85 rollover can defer when you incorporate.
Put a number on it
Wondering what your business is worth?
Whether you’re planning a sale, buying in a partner, or incorporating and rolling assets across, we’ll work through the value, the goodwill, and the asset-vs-share question with your actual numbers — and flag what would move the figure before you go to market.
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A conversation starter, not advice. The methods and numbers here are simplified for illustration. A real valuation weighs the approaches, normalizes the earnings, and reflects your specific facts — and for a sale, dispute or tax filing, a formal valuation (often by a Chartered Business Valuator) is usually warranted. The asset-vs-share and capital-gains-exemption rules are fact-specific and change over time. Use this to understand the shape of it, then let’s look at your numbers.