What are the main types of business valuation?
SHORT ANSWER
Most owners meet three levels: an online assessment that gives an estimated range, an opinion of value from a broker or advisor, and a certified valuation from a Chartered Business Valuator. Rules of thumb and industry multiples are a starting point, not an answer, because “businesses like mine sell for four times” ignores everything that makes yours different.
| Type | Purpose | Basis | What it does not establish |
|---|---|---|---|
| Online assessment (estimated range) | Early baseline and conversation anchor | Owner-entered information and assessment model | Formal or transaction-ready value |
| Opinion of value from a broker or advisor | Advisory view for owner decision-making and market preparation | Normalized information, market evidence, comparable transactions, and buyer logic | Certified independent valuation or guaranteed sale price |
| Certified valuation from a Chartered Business Valuator | A fit-for-purpose professional conclusion for defined users and purposes | Work performed under the valuator’s applicable standards and scope | A guaranteed transaction price |
When is an online assessment enough?
SHORT ANSWER
It is enough when you want a quick baseline just to start with. It gives you a quick range and shows what drives value, and they’re often free. Be careful with online calculators, though: many use broad averages and can’t see add-backs, owner dependency or customer concentration, which are exactly what moves your number.
Remember that an estimated range is a useful baseline for a conversation with an advisor, but it’s not a formal valuation.
When do you need an opinion of value?
SHORT ANSWER
You need an opinion when you are making decisions about a sale. An opinion of value from a broker or advisor is built on buyer logic and analytic market data that tells you the dollar amounts of what buyers are paying for businesses in your industry.
It draws on normalized information and comparable transactions but isn’t a guaranteed sale price nor a certified independent valuation to go off.
An unsolicited offer is not a valuation either. One buyer’s economics do not establish market value.
When do you need a certified valuation?
SHORT ANSWER
When the question is legal or formal. A certified valuation from a Chartered Business Valuator is a formal report, often needed for legal or tax matters, shareholder disputes or estates. It’s the most rigorous option, and usually the most expensive.
A defensible fair market value report costs a few thousand dollars and is lesser in price compared to a certified report which will typically cost you more. The CRA describes fair market value as usually the highest dollar value you can get for your property in an open and unrestricted market, between a willing buyer and a willing seller who are acting independently of each other (CRA).
How do you choose the right business valuation?
SHORT ANSWER
The right one depends on the question. Planning an exit, buying out a partner, dealing with the tax authorities or a divorce each needs a different level of insight. Valuations in general are just snapshots. Depending on the timeline, if you did a valuation two years ago, you have a number, but it isn’t evidence of what’s changed since.
Another important point to note is that market value isn’t the whole picture. You also need to know what that value means after tax, and whether it funds the life you want.
What this means for you
A free baseline is a great place to start, then get the level of valuation your decision actually needs.
The best valuations explain themselves without any hassle. You should walk our armed with the knowledge of not just knowing the number but the reasons behind the number and what could potentially change it.
If the number isn’t where you want it yet, growing the value first is a good answer too. For how valuation fits into a sale, see how to sell a business in Canada: the 12-month playbook.
