How to assess the fair market value of a business in Quebec

Fair market value generally refers to the price that could be obtained in an open market between willing, knowledgeable and prudent parties dealing at arm's length. The circumstances, assets or shares being valued, valuation date and transaction conditions all matter. Confirm the applicable definition for the specific engagement.

Fair market value is not automatically the asking price, negotiated price, book value or special investment value to one strategic buyer. A lender may also apply its own financing criteria. A valuation conclusion guarantees neither a sale price nor loan approval.

First identify what is being valued: the operations of a business, identified assets or an ownership interest. Enterprise value and equity value can be different.

A valuation can support a business purchase or sale, succession, a share transfer, a financing discussion or a dispute. The need for independence, documentation and the intended use of the report vary with the circumstances.

Define who will use the outcome, what decision it supports, the valuation date and the basis of value. Tax, legal and litigation matters may have special requirements that a qualified professional should confirm. An internal calculation will not necessarily satisfy a third party.

A preliminary internal model can still reveal missing information, identify diligence questions and help determine whether a professional valuation engagement is needed.

The Canadian Institute of Chartered Business Valuators (CBV Institute) recognizes three levels of valuation conclusions under its standards effective January 1, 2026: calculation, estimate and comprehensive. These describe the extent of review, inquiry, analysis and independent corroboration performed. Practice Standards 100, 110, 120 and 130 and current Practice Bulletin No. 3 are the principal references.

A calculation conclusion involves less extensive work, but it is not merely a spreadsheet multiplication. It must still be credible and properly supported for the assignment. An estimate conclusion involves more substantial work, while a comprehensive conclusion requires extensive analysis and corroboration of significant assumptions and inputs.

The appropriate level depends on the engagement purpose, intended users, complexity, risk and information quality. Do not assume that a calculation report is acceptable for a tax matter, litigation or financing without checking the recipient's requirements. A professional engagement also has to specify the subject interest, purpose, intended users, reporting limitations and the information the valuator is expected to review. When a critical source is missing or unreliable, the scope and even the appropriate type of conclusion may need to be revisited.

The three levels of valuation conclusions should not be confused with the three families of valuation approaches. Levels describe the scope of a professional engagement; approaches describe how value is analysed. A valuator may apply more than one method and reconcile the outcomes.

The income approach examines expected profits or cash flows, using approaches such as capitalization or discounted cash flow. It requires supportable assumptions about growth, risk and future performance.

The market approach examines comparable transactions and valuation multiples, such as a multiple of EBITDA. A multiple must be supported by truly comparable businesses, transaction dates, market conditions and company-specific risks.

The asset approach considers relevant assets and liabilities, sometimes at adjusted values. It may be especially useful for asset-heavy businesses, weak operating earnings or certain liquidation scenarios.

EBITDA (earnings before interest, taxes, depreciation and amortization) is commonly used as an operating earnings indicator, but it is not free cash flow. Applying an EBITDA multiple cannot replace consideration of capital investment, working capital, taxes and risk.

An analyst may investigate one-time expenses, unusual transactions, owner compensation, related-party arrangements and items unrelated to normal operations. Adjustments need documented support; they should not simply be added to raise the indicated value.

Review several financial periods, assess trends in profitability and reconcile figures to available records. An unusually profitable year does not necessarily reflect sustainable performance.

Assume a fictional company has normalized EBITDA of $200,000 and an entirely hypothetical multiple of 4.0 times. Multiplication produces an illustrative enterprise value of $800,000 ($200,000 × 4.0). The 4.0 multiple is used only to explain the arithmetic: it is not supported by market comparables and must not be treated as a recommended industry multiple.

Assume financial debt of $230,000 and eligible excess cash of $50,000. In this simplified example, net debt is $180,000 and indicated equity value would be $620,000 ($800,000 − $180,000) before other possible adjustments. Cash, debt, non-operating assets and working capital must be treated consistently with the actual scope and basis of valuation; they cannot be mechanically added or subtracted in every case.

Neither $800,000 nor $620,000 is an established fair market value. The example excludes the analysis of comparable transactions, projections, risks, asset values and the exact interest being valued. Other methods could produce different indications. In a real transaction, working capital adjustments may depend on a negotiated target level, and the treatment of cash, financial debt or transaction expenses can differ between an enterprise value calculation and the final purchase agreement. That is why this simple bridge is useful for learning terminology but not for setting the final price.

Prepare several years of financial statements and relevant tax filings, current interim results, forecasts and their assumptions, loan records and details of significant assets and liabilities. Book values alone may not reflect market values.

Also assemble material contracts, customer and supplier concentration information, lease terms, management responsibilities, employment arrangements, intellectual property, known litigation and contingent obligations. The evidence should help an independent party assess future performance and risk.

For acquisitions, distinguish confirmed records, seller representations, assumptions and open due-diligence questions. These materials can support a business plan and financing forecasts, but collecting documents is not the same as performing due diligence. A practical document index records the source, reporting period, date received and whether an item has been independently checked. For example, a seller-provided customer list may show revenue concentration, but it does not by itself prove the contracts will continue after a change of ownership.

Revenue stability, customer relationships, supplier concentration, management dependence, contract renewals and operational systems can affect both risk and expected performance. Conditions as at the valuation date also matter.

The ownership interest being valued can change the analysis. A controlling interest and a minority stake may carry different rights and restrictions; a whole-company equity figure should not automatically be divided proportionally to price a minority holding.

A particular buyer may be willing to pay more because of unique synergies. That price need not equal fair market value under the stated definition. Financing availability and a negotiated purchase price should also be considered separately. Compare different downside scenarios, such as the loss of a major customer, an increase in wages or an equipment replacement. These situations can affect expected cash flows even when recent EBITDA appears stable.

A multiple found online may be unsuitable for the company's sector, size, timing and level of risk. Using sales alone without supporting a meaningful pricing method, or ignoring necessary capital spending and working capital, can be equally misleading.

Other common errors include confusing enterprise value and equity value, double-counting cash or non-operating assets, ignoring ownership restrictions, or valuing assets when the actual transaction concerns shares.

An internal exercise, however thoughtful, should not be represented as a professional valuation conclusion under CBV standards. This guide does not express an opinion on the value of any particular business.

Seek a qualified valuator when the financial stakes, uncertainty, third-party requirements or a dispute warrant an independent opinion. The valuator can define the purpose, date, basis of value, scope of work and suitable methods. Choosing the appropriate conclusion level requires professional judgment.

Clarify who may rely on the report, what information is needed, the limitations and whether the report may be shared with a lender, purchaser or other party. Legal or tax advice may also be relevant.

HorizonL can help organize an acquisition project, centralize documents and prepare business plans or financial forecasts. It is not a business valuation service, does not certify fair market value and does not issue professional CBV valuation reports.