Straight answers for owners

Most private businesses are valued as adjusted EBITDA times a multiple. The profit a buyer believes will continue is multiplied by a number that reflects risk and growth.

It depends on size, industry, growth and risk. Smaller owner-led service firms often sit lower; larger, recurring, owner-independent firms sit higher.

Add-backs are costs added back to profit because a new owner would not have them. Buyers accept the ones you can document and reject the rest.

Owner dependence is how much the business relies on you for sales, relationships, decisions or know-how. Buyers see it as risk, and risk lowers the price.

Move one job at a time from you to the business: write it down, hand it to a person, and set a scorecard so you can see it working without being in it.

For most owner-led companies it takes one to three years of steady work. The first real handoffs can happen within 90 days.

Grow the profit a buyer will pay for, and raise the multiple they pay on it. The biggest levers are pricing, recurring revenue, a strong team and less dependence on you.

Not on its own. Revenue growth helps if it brings lasting profit and lower risk. Growth that depends on you or a few clients can leave the multiple flat.

It can grow profit and your multiple at the same time, but only if you can fold each company onto one platform. Buying without a platform adds work and risk.

Ideally two to three years before you want to sell. Most value is lost to issues that were fixable a few years earlier.

After you accept an offer, the buyer reviews your financials, contracts, team, tax and legal matters in detail. Surprises found here are the most common reason prices drop.

Expect corporate records, 3 years of financials and tax returns, key contracts, employee agreements, IP ownership and insurance. The goal is to open a data room within 48 hours.

A letter of intent sets out the proposed price, structure and key terms before diligence. It is mostly non-binding, but once signed you usually stop talking to other buyers.

Cash at closing is certain. An earnout pays later only if targets are met, often after you no longer control the business. More cash up front usually means less risk for you.

Don’t say yes or no yet. Find out what your business is worth first, so you can judge the offer against your real number, not the buyer’s.

In a share sale the buyer buys your shares and the whole company. In an asset sale they buy chosen assets and leave the company with you. The tax result for you can be very different.

It is a Canadian tax rule that can shelter part of the gain when you sell shares of a qualifying small business. Your company must meet the tests at the time of sale, and planning takes years.

Less than the headline price. Start with the price, subtract debt, adjust for working capital, then take off fees and tax. Structure decides much of the difference.