Sell or close your business? What a profitable company is really worth

Before closing a profitable business out of fatigue, know its real value and what preparing the sale upfront can add to it.

Closing a profitable business because the sale process seems too demanding is often the most expensive decision an owner can make. Before choosing, only one question really matters. What is the business worth, and how much of that value disappears the day you lock the door for good?

The question comes up often among owners who are reaching the end of a long road. The business is profitable, sometimes very profitable, but the energy is gone and the prospect of a sale process feels overwhelming. Wanting a number before investing that effort is a sound reaction. Here is how to get it, and why the answer depends largely on what you do before you sell.

Your accountant's EBITDA is not yet the buyer's EBITDA

The EBITDA reported in the financial statements is a starting point. A buyer looks at normalized EBITDA, meaning the profit the business would generate without its current owner.

If the owner pays himself less than it would cost to hire a general manager to replace him, the buyer will deduct the difference. Conversely, some personal or non-recurring expenses run through the business will be added back. Normalized EBITDA can therefore differ significantly from the figure in the financial statements, in either direction. It is the basis for the valuation.

The multiple depends mostly on the owner

Quebec SMEs generally change hands based on a multiple of their normalized EBITDA. That multiple varies considerably from one business to another, and the gap does not come primarily from the industry. It comes from how dependent the business is on its owner.

A business where the owner holds the client relationships, sets the prices and solves every problem sells at a low multiple. A business with a management team able to run without the owner commands a significantly higher multiple.

Between a business that depends entirely on its owner and one that runs without them, the difference in price often amounts to more than a full year of profits. The main driver of value is therefore often within the owner's direct control.

What closing really costs

Closing does not mean cashing in the value of the business. Closing means giving up goodwill, which is all the value above the tangible assets.

Equipment sold at auction usually fetches a fraction of its book value. Inventory is liquidated at a discount. Then come employee severance, the notices required under Quebec's labour standards legislation, lease commitments and liquidation costs.

On the tax side, the gap is often even wider. Selling the shares of a qualifying corporation may allow each shareholder to claim the lifetime capital gains exemption, which now exceeds one million dollars. A closure generally provides no access to this benefit, and the money taken out of the corporation is then paid as taxable dividends. Each situation must be validated with the company's accountant or tax specialist, but the order of magnitude is often enough to change the decision.

For a profitable business, the gap between selling and closing typically represents several years of profits.

Fatigue is also a value factor

Owner fatigue is not a personal detail. It almost always ends up showing in the results. Clients get less follow-up, growth projects are postponed, key employees sense the drift. Every quarter of decline reduces the EBITDA on which the buyer will base the price.

Waiting until you are exhausted to decide therefore often means selling for less, or closing by default.

Preparing the sale upfront, where value is created

Most owners approach a sale as a transaction. In reality, most of the value is determined in the twelve to twenty-four months before it. That is the period in which a business can move from a low multiple to a high one.

Serious preparation focuses on a few specific workstreams. Reducing dependence on the owner, by gradually transferring client relationships and day-to-day decisions to a team able to carry them. Presenting financial statements that faithfully reflect normalized profitability, so the buyer has no reason to doubt the EBITDA. Securing key employees and major contracts, which are the first things a buyer examines. Putting in place, with the company's accountant, the tax structure that will make full use of the benefits available in a share sale.

This preparation has a second, often underestimated effect. It lightens the owner's load well before the sale. A business that runs day to day without its owner is both easier to sell and far less draining to lead during the process.

At Nezzo, this is precisely the role of our advisory engagement. We set the priorities, structure the approach and track progress on a regular cadence with the owner and their managers, while the company's own team executes. The owner spends their energy on the decisions that truly matter, not on the day-to-day coordination of the file.

Where to start

The first step is neither hiring a broker nor announcing anything. It is getting a credible value range, based on normalized EBITDA and an honest reading of how dependent the business is on its owner. The next step is measuring the gap between the current value and the value the business could reach with proper preparation. With those two numbers in hand, the question of selling or closing stops being a matter of exhaustion and becomes a business decision.

If you are asking yourself this question, a first confidential conversation with the Nezzo team, in collaboration with your accountant, will help you assess where your business stands and whether the process is worth the effort.