An earnings multiple is the valuation coefficient applied to a business's normalized profit to estimate its market value. The two most common forms in Canadian SMB transactions are the SDE multiple (used for owner-operated businesses) and the EBITDA multiple (used for managed businesses). Earnings multiples are derived from comparable transaction data — what similar businesses in the same industry, size range, and geography have actually sold for. In BC, typical SDE multiples for small owner-operated businesses range from 2.0× to 4.5×, while EBITDA multiples for managed businesses range from 3.0× to 6.0×. The multiple applied in any specific deal reflects a blend of qualitative and quantitative factors: business growth trajectory, customer concentration, lease quality, owner dependency, competitive moat, employee retention, and industry conditions. Faster-growing, less owner-dependent businesses with diversified customers and long-term contracts command higher multiples. Declining, highly owner-dependent businesses with short leases and one or two major customers command lower multiples. Understanding what drives multiples up and down is essential for both valuing a target and negotiating with the seller.
Two White Rock businesses both have $250,000 SDE. Business A is a trade services company with 200 regular customers, a 10-year history, and a manager in place. It sells at 4.2×, or $1.05 million. Business B is a single-operator consulting practice where the owner holds all client relationships. It sells at 2.5×, or $625,000 — a 40% lower multiple for essentially the same earnings.
Ali Sedighi uses this concept on every valuation engagement — cross-checking seller claims against third-party financial data and Canadian comparable sales before advising any buyer on price.