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.

Where to start: read the three approaches and see how they reconcile, then look at how goodwill falls out and the difference between an asset sale and a share sale when it’s time to actually do a deal.

First, the why

When a value matters

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:

selling or buying a business
a partner joining or leaving
incorporating under Section 85
bank security, estate planning, or a marriage breakdown

“Fair market value” is the standard: the price a willing, informed buyer and seller at arm’s length would agree on, though a strategic buyer may see more than a financial one. 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

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

Value≈ $232,000

Income

$232,000

Asset

$182,000

Market

~$232,000

Concluded value

~$232,000

The three rarely land on the exact same number — a spread is normal. 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)

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.

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.

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. 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

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.

Doing the deal

Asset sale vs. share sale

Once you agree on a value, there are two ways to actually transact — sell the assets, or sell the shares of the company. They look similar on the cheque but land very differently on tax, risk and complexity, and buyer and seller usually want opposite things.

	Asset sale	Share sale
What changes hands	Chosen assets (equipment, goodwill, inventory) and only the liabilities the buyer agrees to take. The seller keeps the company shell.	The shares of the company — so everything inside it comes too: assets, contracts, and all liabilities.
Seller’s tax	Often two layers: the corporation is taxed on recapture and gains, then you’re taxed again pulling the cash out as a dividend.	Usually one capital gain on the shares — generally the lower-tax route.
Capital gains exemption	Not available.	Up to $1.275M (2026) of gain can be sheltered by the Lifetime Capital Gains Exemption — if the shares qualify as QSBC shares.
Buyer’s liability risk	Lower — unknown and contingent liabilities are left behind with the old entity.	Higher — the buyer inherits every liability, known or not, so needs deep due diligence and indemnities.
Buyer’s future write-offs	A fresh, higher tax cost on the assets and goodwill — more CCA and amortization going forward (the “bump”).	Inherits the company’s existing (often low) tax values — fewer future deductions.
Complexity	Each asset is retitled and contracts, permits and leases reassigned; GST may apply (a joint election can waive it on a sale of the whole business).	Cleaner continuity — contracts, employees, permits and tax accounts simply carry on under new ownership.
Usually preferred by	Buyers	Sellers

The tension — and the deal. Sellers lean toward a share sale (one level of tax, plus the capital gains exemption). Buyers lean toward an asset sale (a higher cost base to write off, and none of the old liabilities). That gap is real money, and it’s where negotiation happens — a price adjustment to share the tax difference, extra indemnities, or a hybrid deal. It’s worth modelling both ways with your CPA before you sign a letter of intent.

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.

Book a 30-min chat Send us an email

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.

Back to all resources

Keep exploring

Related guides & tools

Reorganizations