- Valuation methods give you a range, not a single answer, so most owners look at more than one.
- Whether you sell assets or shares changes what the buyer is getting, how it can be financed and which taxes may apply.
- A buyer using Canada Small Business Financing Program (CSBFP) financing for business assets is capped at the lower of the purchase price or the appraised value of those assets.
Setting an asking price is one of the hardest parts of selling a business. Ask too high and buyers walk away. Ask too low and you give up value you built over years.
This article explains the common valuation methods, what tends to move the price of a small Alberta business, and how the structure of the sale (assets or shares) can change the number. It is general information, and an accountant or business valuator can work through your actual figures.
This article covers the law of Alberta.
Common ways to value a business
No single formula fits every business. Owners and buyers usually look at several approaches and compare the results.
- Asset-based: add up what the business owns (equipment, inventory, property) and subtract what it owes. This suits asset-heavy businesses.
- Earnings multiple: take a measure of the business's yearly profit and apply a multiple that reflects the industry and the risk.
- Discounted cash flow: estimate future cash the business will produce and convert it to today's value.
- Market comparison: look at what similar businesses have sold for, where that information can be found.
The results often differ. The gap between them is useful because it shows where a buyer may push back.
What drives the price of a small business
- Reliable, well-documented profits over several years
- How much the business depends on you personally, including customer relationships
- Customer concentration: relying on a few large customers worries buyers
- Condition and age of equipment
- Lease terms and how long the premises remain available
- Staff stability and whether key people will stay
- Licences, contracts and brand that carry over to a new owner
Clean books matter most. A buyer will discount for anything they cannot verify.
Asset sale or share sale: how it affects the number
In an asset sale, the buyer purchases the business's property and takes on selected parts of the business. In a share sale, the buyer purchases the company itself, including its history. The structure affects the price you can realistically ask.
| Point | Asset sale | Share sale |
|---|---|---|
| Buyer financing through CSBFP | Can finance the eligible assets of an existing business | Cannot be funded this way |
| GST | Each property and service is treated as a separate supply unless an election applies | Depends on the facts; confirm with an accountant |
| What the buyer takes on | Chosen assets and agreed obligations | The whole company, including past liabilities |
Because a share purchase of an Alberta company cannot be funded through CSBFP, a buyer relying on that program may only be able to pay for assets.
Tax and financing points that affect what buyers will pay
Without an election, each property and service in a business sale is treated as a separate supply, so GST (5% in Alberta) can apply to the taxable parts. Alberta has no provincial sales tax.
A joint election under section 167 of the Excise Tax Act can mean no tax is payable on the supplies under the agreement if the election is valid, but tax is still payable on a taxable service the supplier will render, on a taxable lease, licence or similar supply of property, and, where the buyer is not a registrant, on a taxable sale of real property. It applies where the buyer gets all or substantially all of the property that can reasonably be regarded as necessary to carry on the business. It is not available where the supplier is a registrant and the recipient is not.
Financing can also set a ceiling. CSBFP financing for an existing business is capped at the lower of the purchase price or the appraised value of the eligible assets. If your price is well above appraised asset value, a buyer may need other funding.
What to do next
- Gather at least several years of financial statements and tax filings.
- Ask an accountant or valuator for a range using more than one method.
- List what is included in the sale: equipment, inventory, lease, contracts, licences.
- Decide with your advisers whether you prefer an asset or share sale before you set the price.
- Ask a lawyer to check the business's corporate and security registrations, such as through Corporate Registry and Personal Property Registry searches.
Talk to an accountant about GST and income tax and a lawyer about the sale agreement before you list the business.
Frequently asked questions
Is there one correct way to value a small business?
No. Different methods suit different businesses, and buyers often compare more than one. A range is more realistic than a single number.
Does selling shares instead of assets change the price?
It can. A buyer takes on the whole company in a share sale, which affects risk. A share purchase of an Alberta company cannot be financed through CSBFP.
Will GST apply to my business sale?
Without an election, each property and service is treated as a separate supply and GST can apply to the taxable parts. A valid joint election under section 167 can mean no tax is payable on the supplies under the agreement, with exceptions. An accountant can confirm your situation.
Can a buyer finance the whole price with CSBFP?
Not necessarily. Financing is capped at the lower of the purchase price or the appraised value of the eligible assets. The total is also limited, and the borrower and lender negotiate the actual amount.
Sources
- Excise Tax Act, s.167 (Justice Laws) — Justice Laws (federal)
- ISED – CSBFP FAQ for small businesses — ised-isde.canada.ca
- Alberta.ca – Find corporation details — alberta.ca
- Alberta.ca – Find a personal property registration — alberta.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a buying & selling a business question
Buying or selling a business with us is from $3,148.95, tax included. Third-party fees are extra.