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Understanding the true value of your small business is one of the most important steps you can take when preparing to sell, restructure, or plan your exit. Yet, for many small business owners, valuation remains a misunderstood—and often intimidating—topic. At Alberta Business Exchange, we believe in demystifying the process and empowering owners with clarity.
This guide is designed to walk you through both sides of the valuation process: what you, as a business owner, need to compile and provide, and what we, as experienced transaction advisors, do to assess your business’s fair market value.
Why You Need an Accurate Valuation
Business valuation is not an exact science, but it is a necessary one. It’s really like an art and a science, balancing the numbers with the “feelings” of the market. Whether you’re preparing for sale, seeking investors, applying for financing, or simply planning ahead, a credible valuation provides the strategic insight you need to make informed decisions.
Undervaluing your business can cost you significant equity, while an inflated valuation can derail deals and discourage buyers. The right valuation sets expectations, supports negotiation, and reveals opportunities for growth.
What Business Owners Need to Provide for a Proper Valuation
Before a valuation can begin, we rely on you to provide a complete and accurate picture of your business. The more thorough your preparation, the more accurate and actionable the resulting valuation.
Financial Statements
- Last 3–5 years of income statements, balance sheets, and cash flow statements
- Year-to-date financials for the current fiscal year
- Breakdown of owner’s discretionary spending and any one-time expenses
Tax Returns
- At least the past three years
- Corporate tax filings that verify reported revenue and expenses
Operating Information
- Lease agreements, loan obligations, supplier and vendor contracts
- Employee information, including roles, wages, benefits, and tenure
- Any existing customer contracts or recurring revenue sources
Intangible Assets
- Trademarks, patents, proprietary processes or software
- Brand reputation through reviews and ratings
- Domain names
- Community goodwill
Sales and Marketing Metrics
- Sales pipeline, customer acquisition costs, conversion rates
- Market share insights and competitive positioning
Inventory and Equipment Lists
- Up-to-date inventory valuation (including write-offs)
- Major equipment assets, including age, condition, and replacement cost
The goal is to show both the numbers and the narrative of your business. Then we can work to demonstrate your financial strength, operational stability, and competitive differentiation.
How We Assess Business Value: Our Process
Once we have a clear picture of your business, our team conducts a multi-step valuation process. Our methodology balances financial models with real-world market experience. You can expect similar if you are not from Alberta and working with a local firm.
Step 1: Initial Discovery and Goal Setting
We start with a confidential conversation to understand your objectives, exit timeline, and unique challenges. This ensures the valuation aligns with your broader strategy, whether it’s preparing for a sale or testing your market readiness.
Step 2: Normalizing Financials
We review and adjust financial statements to reflect the true earning potential of the business. This includes:
- Removing owner-specific expenses
- Accounting for one-time or non-recurring costs
- Adjusting salaries or lease rates to market levels
Step 3: Applying Valuation Methods
Most small business valuations incorporate one or more of the following:
- Earnings-Based Approach: Applying a multiple to normalized EBITDA (earnings before interest, taxes, depreciation, amortization) and assessing capital expenditures (CAPEX)
- Market-Based Approach: Comparing recent sales of similar businesses in the region or industry
- Asset-Based Approach: Evaluating the tangible and intangible assets of the business, less liabilities
- Cost-to-Recreate Approach: Based on the estimated cost to replicate developed assets, often used for pre-revenue businesses with proprietary software or R&D.
The method used depends on business size, industry, revenue mix, and growth trajectory.
Step 4: Risk and Value Driver Analysis
We analyze risk factors that could impact a buyer’s perception of value, including:
- Customer concentration
- Industry volatility
- Owner dependency
- Competitive landscape
- Staff retention
Conversely, we highlight value drivers that can elevate the sale price:
- Age of business
- Strong recurring revenue
- Loyal customer base
- Owner involvement
- Documented processes
- Market growth opportunities
- And many more!
Step 5: Determining a Fair Market Range
We arrive at a fair market value range, not a single number, based on real buyer behaviour and current market conditions in Alberta. This provides flexibility in negotiations and helps frame buyer expectations.
What Affects Your Valuation Multiple?
The multiple applied to your earnings reflects the buyer’s perception of risk and return. Factors that influence multiples include:
- Strength of the management team
- Documented systems and scalability
- Market stability and future growth
- Clean financials and operational transparency
- Transferability of the business to a new owner
For example, a business with $500,000 in normalized earnings might sell for anywhere from 2x to 5x earnings, depending on these variables.
Common Misconceptions About Business Value
Let’s set some things straight. You may have heard some of these business value misconceptions:
- “I heard a similar business sold for X, so mine must be worth the same.” Not true. Each business has unique risks and structures.
- “My accountant did a valuation.” Accountants may help with financials, but experienced brokers understand market dynamics and buyer psychology.
- “The buyer will pay for potential.” Buyers only pay for proven potential, backed by documentation and low transition risk.
Working with professional advisors should give you the clarity you need to cut through the noise.
Enhancing Value Before Sale
A valuation isn’t just a final report. It’s really more like a roadmap for improvement. Many owners use their valuation results to:
- Reduce owner dependency
- Document systems and processes
- Diversify the customer base
- Improve profitability and margins
- Introduce recurring revenue streams
With even 6–12 months of preparation, business value can increase significantly following an initial valuation assessment.
Why Work With Alberta Business Exchange
We don’t just run the numbers, but actually interpret them for you. We specialize in small and medium sized businesses in Alberta and bring deep experience in buyer behaviour, deal structure, and local economic conditions.
Our valuation process prepares you for a successful exit; one that aligns with your goals, values, and future plans. We walk with you from first consultation to final closing.
Ready to Find Out What Your Business is Really Worth?
Whether you’re planning an exit now or just want to understand your business’s market position, Alberta Business Exchange can help. Our process is confidential, backed by data and tailored to Alberta’s business landscape.
Schedule a no-obligation consultation with one of our experienced advisors to receive your Business Valuation Report. Contact us today to gain clarity, confidence, and a strategy for your future.