Business Valuation Basics: How Companies Are Valued (2026)

Most private businesses are valued using one of three approaches: the income approach (a multiple of earnings such as EBITDA or SDE, or a discounted cash flow), the market approach (what comparable businesses have sold for), and the asset approach (the net value of what the business owns). For small and mid-sized owner-operated companies, the income approach — usually a multiple of earnings — dominates in practice. As general 2026 market context, small to mid-sized Canadian private businesses commonly trade at roughly 3 to 6 times EBITDA, though the right number depends heavily on industry, size, growth, and how much of the revenue is recurring.

This guide covers the core methods, the typical 2026 multiples, what moves the number up or down, and when a rough estimate is fine versus when you need a formal valuation. The benchmarks below are market context, not a valuation of any specific business.

The three valuation approaches

Income approach — the most common for SMBs

The income approach values a business on its ability to generate earnings or cash flow. It comes in two main flavours:

• Earnings multiple. You take a normalized earnings figure (EBITDA or SDE) and apply a multiple drawn from market comparables. Simple, fast, and the default for most owner-operated businesses.
• Discounted cash flow (DCF). You project future cash flows and discount them back to today's value using a rate that reflects risk. More rigorous and forward-looking, DCF suits businesses with predictable cash flows or significant growth ahead, but it is sensitive to its assumptions.

Market approach — what comparables sold for

The market approach looks at actual sale prices of comparable businesses and derives a valuation from them. It is intuitive and grounded in real transactions, but good comparable data for private businesses can be hard to find, which is why it often informs the multiple used in the income approach rather than standing alone.

Asset approach — net value of what you own

The asset approach values the business as the fair value of its assets minus its liabilities. It is most relevant for asset-heavy businesses (real estate, equipment) or for a business being wound down, where the going-concern earnings are less relevant than the underlying assets.

EBITDA vs. SDE: which earnings figure?

The earnings figure you multiply depends on the size and structure of the business.

A practical rule: very small owner-run businesses are usually valued on SDE, while businesses large enough to run without the owner in the day-to-day are valued on EBITDA. SDE multiples generally run lower than EBITDA multiples because they include the owner's own labour.

Typical 2026 valuation multiples

Multiples vary enormously by industry, and the figures below are general 2026 market context, not guarantees. Across thousands of reported small-business transactions, the average SDE multiple sits around 2.5x, but individual industries range from under 1.5x to over 6x.

Industry matters: professional and healthcare practices, software, and recurring-revenue businesses tend to sit at the higher end, while thin-margin or highly owner-dependent businesses sit lower.

What moves the multiple up or down

Two businesses with identical earnings can be worth very different amounts. The multiple a buyer will pay rises with:

• Recurring or contracted revenue — predictability is worth a premium; subscription and contract revenue reduce buyer risk.
• Strong, documented margins — clean, demonstrable profitability beats a busy top line.
• Low owner dependence — a business that runs without the owner is far more transferable, and transferability drives value.
• Customer diversification — heavy reliance on one or two clients depresses the multiple.
• Clean financial records — buyers discount what they cannot verify; tidy books and credible reporting lift value.
• Consistent growth — a clear, defensible growth trajectory supports a higher multiple.

Conversely, customer concentration, owner-dependence, messy records, and erratic earnings all pull the multiple down — often more than owners expect.

When you need a valuation

You can estimate value yourself with an earnings multiple to understand the rough range. But certain situations call for a formal, independent valuation:

• Selling the business or buying out a partner or shareholder.
• Succession or estate planning, where the number drives fairness and tax outcomes.
• Legal matters such as a divorce or shareholder dispute, where the valuation must be defensible.
• Raising capital or financing, where lenders and investors want a credible figure.
• Certain tax events, where the Canada Revenue Agency expects supportable fair market value.

For these, a back-of-envelope multiple is not enough — the stakes justify the rigour and defensibility of a professional valuation. If a sale or succession is on your horizon, the signs you need a fractional CFO often appear well before the transaction does, because positioning a business to sell well is a multi-year exercise.

How RN Canada helps

RN Canada provides project and company valuation services to founders, owner-managers, and small and mid-sized businesses across Canada, with a primary focus on Alberta and a second office in British Columbia. Our founder, Ozgur Duymaz, holds a Ph.D. in accounting and finance and is a CPA (Canada), ACCA (UK), and CMA (US), with deep expertise in valuation, IFRS, US GAAP, and corporate finance. We can scope a project/company valuation engagement to your situation — a sale, a buyout, succession planning, or financing — using the appropriate method and defensible, well-documented assumptions. To go deeper on the underlying concept, see our business valuation glossary entry or our pillar on what a fractional CFO is.