Business valuation: what you expect versus what buyers pay
Owners often price a business from what they need for retirement. Buyers price it from risk and from what a lender will finance, and you can narrow the gap before you sell.
Photo by Olena Kholina on Unsplash
Many owners set their price by working backward from retirement. They know what they need to live on, they add a cushion, and that becomes the number. Buyers start somewhere else. They begin with the earnings they believe will continue, discount for risk, and check the result against what a lender will finance.
So the business valuation you have in mind and the offer on the table are often far apart. That gap rarely means the buyer is being unfair. It is mostly a gap in risk, and this autumn’s market makes that risk easier to see.
Why the two numbers start in different places
Your retirement number tells a buyer about you, not about the business. A buyer cannot pay more because you need more, and a lender will not lend against your plans.
Many owners also find the value hard to pin down. In research the Canadian Federation of Independent Business (CFIB) published in 2023, 43% of owners said they struggled to measure the value of their business. In the same research, 39% said the business relied too heavily on them day to day, and only 9% had a formal succession plan.
Those figures matter more now because a large wave of owners is getting ready to sell. A January 2026 study by the Business Development Bank of Canada (BDC) found that 61% of small and medium-sized businesses (SMEs) are led by owners aged 50 or older. Nearly one in five plan to exit within five years. BDC puts the value of the businesses expected to change hands in that period at $300 billion. For scale, Statistics Canada counted 1.37 million employer businesses in Canada in June 2026.
What the market looks like this autumn
Buyers are paying for future earnings, so the state of the economy shows up directly in their offers. In September, that outlook weakened.
On September 2, the Bank of Canada held its policy rate at 2.25% and said the economy and inflation were evolving broadly as it forecast in July. The same statement said financial conditions had tightened since July and that long-term bond yields had moved up globally, including in Canada. It also said the upside risks to inflation had increased and that new tariffs make growth prospects more uncertain.
The policy rate did not move, but that does not settle the matter for a sale. When debt costs more, a buyer who relies on borrowing can support less price from the same earnings.
Owners are feeling the change too. CFIB reported that small business confidence dropped nearly 10 points in September, to 47.9 on its long-term optimism index. That put the index below the 50-point threshold after a decline that began in July. In British Columbia, the three-month average was 54.2 and declining, as it was in Quebec, Alberta and Ontario. By sector, confidence remains weakest in agriculture, manufacturing and construction.
When buyers expect weaker earnings, they pay less in cash at closing. They move more of the price into terms that depend on how the business performs after the sale.
How buyers approach business valuation
Most buyers follow a similar sequence, even if they describe it differently.
First, they adjust your earnings. They take out personal expenses and one-time items. They also replace your salary with what it would cost to hire someone to do your job. The result can be higher or lower than the profit on your statements.
Next, they ask how long those earnings will last. They look at how concentrated your customers are, how long your contracts run, how stable your staff is, and how much of the business runs through you. Each weakness lowers what they will pay for each dollar of earnings.
Finally, they test the price against what they can finance. A lender looks at how much debt the cash flow can carry. The buyer adds its own equity. If those two amounts do not cover your asking price, the difference has to come from somewhere. Usually it comes from you, as vendor financing or deferred payments.
Your accountant can show you what your adjusted earnings look like. A licensed valuator, such as a Chartered Business Valuator (CBV), can tell you what they are worth.
The gap between your number and the offer is mostly a gap in risk.
Owner dependence and the first-year risk
BDC points out that about two-thirds of companies underperform in the first year after a transfer. Buyers know this and price it in. BDC also notes that buyers often need sellers to stay involved during the integration, and that sellers rarely receive full payment up front.
This is where owner dependence costs the most. If key customers, suppliers or know-how depend on you personally, the buyer is paying for something that leaves when you do. To protect itself, the buyer will offer a lower cash price, ask you to stay through a longer handover, and ask you to carry part of the price as a loan. You take on some of the risk of that first year.
Strong businesses still get strong prices
The same BDC study found there are about seven sellers for every 10 buyers, which means competition for strong businesses. BDC’s 2026 annual report says demand for business transfer capital increased as owners worked through succession, restructuring and growth under tighter conditions.
Buyers have both the money and the interest. In a cooler economy they are simply more selective. A well-run business that does not depend on its owner can still attract competing offers. A weaker one gets the terms described above.
Indigenous development corporations as buyers
Indigenous development corporations and Nation-owned businesses are part of this buyer pool, and some now have financing built for acquisitions. On June 5, 2025, BDC and First Nations Bank of Canada announced a $100 million initiative to increase business acquisitions by Indigenous communities and economic development agencies. BDC’s annual report says the initiative also supports acquisitions by majority Indigenous-owned businesses.
Each Nation decides what it buys and why. For a development corporation on the buying side, the same discipline applies: price from risk, confirm what lenders will finance, and plan for the first year after closing.
Steps to take before you go to market
Most of the gap is something you can work on, but it takes time. Start well before you plan to sell.
- Get an independent valuation. Ask a CBV for a valuation before you set a price. It replaces your retirement number with one a buyer will recognize.
- Reduce reliance on you. Hand customer relationships to others, write down how the work gets done, and build a second layer of management.
- Clean up your financial statements. Ask your accountant to separate personal and one-time expenses so your adjusted earnings are clear.
- See the business as a lender would. Our earlier piece on building a financial model a lender will believe covers what lenders look for.
- Review tax and structure early. Budget 2024 proposed raising the Lifetime Capital Gains Exemption (LCGE) to $1.25 million of eligible capital gains, with indexation resuming in 2026. Your accountant can confirm what applies to you. Your lawyer should review any vendor financing or deferred payment terms before you agree to them.
None of this replaces professional advice. Surbiton does not give valuation, tax or legal advice, so involve your CBV, accountant and lawyer early.
A good first step is to write down two numbers: the price you need and the earnings a buyer could verify today. Then ask a CBV to explain the difference. For the wider preparation, see how to get a business ready for sale or our succession practice.
Sources
- “Over $2 trillion in business assets are at stake as majority of small business owners plan to exit their business over the next decade”, Canadian Federation of Independent Business. https://www.cfib-fcei.ca/en/media/over-2-trillion-in-business-assets-are-at-stake-as-majority-of-small-business-owners-plan-to-exit-their-business-over-the-next-decade
- “Historic $300-billion wave of business acquisitions set to reshape Canada’s economy: BDC study”, Business Development Bank of Canada. https://www.bdc.ca/en/about/mediaroom/news-releases/historic-300-billion-wave-of-business-acquisitions-set-to-reshape-canada-economy
- “The Daily: Canadian business counts, June 2026”, Statistics Canada. https://www150.statcan.gc.ca/n1/daily-quotidien/260814/dq260814d-eng.htm
- “Bank of Canada maintains the policy rate at 2¼%”, Bank of Canada. https://www.bankofcanada.ca/2026/09/fad-press-release-2026-09-02/
- “Fuel costs, tariff pressures drag small business confidence down in September”, Canadian Federation of Independent Business. https://www.cfib-fcei.ca/en/media/fuel-costs-tariff-pressures-drag-small-business-confidence-down-in-september
- “Monthly Business Barometer®: September 2026 results”, Canadian Federation of Independent Business. https://www.cfib-fcei.ca/en/research-economic-analysis/business-barometer
- “Finding your match when buying or selling a business”, Business Development Bank of Canada. https://www.bdc.ca/en/articles-tools/blog/finding-your-match-when-buying-selling-business
- “Annual report 2026: United for entrepreneurs”, Business Development Bank of Canada. https://www.bdc.ca/en/about/corporate-governance/financial-results/annual-report-highlights
- “BDC and First Nations Bank of Canada launch a $100M initiative to boost business acquisitions”, Business Development Bank of Canada. https://www.bdc.ca/en/about/mediaroom/news-releases/bdc-and-first-nations-bank-canada-launch-100m-initiative-to-boost-business-acquisitions
- “Budget 2024: Tax Measures: Supplementary Information”, Department of Finance Canada. https://budget.canada.ca/2024/report-rapport/tm-mf-en.html
