A single multiple applied to a single earnings figure produces a number, not a valuation. A defensible one needs the recast right, the adjusters applied honestly, and a clear answer to whether an informal estimate is even the right tool for the job.
Key takeaways
STEP 01 OF 10
Every version of the method in this guide depends on the recast in rebuilding owner earnings from a tax return being done properly first. A valuation built on an inflated or undocumented SDE figure is not made more rigorous by a carefully chosen multiple — the error simply moves downstream and gets multiplied along with everything else.
Take the recast example from that guide: a target corporation with $421,000 of recast SDE, built from $140,000 of reported net income plus documented add-backs for owner compensation, a personal-use vehicle, interest, amortization and one-time legal costs, less a one-time subsidy. Everything that follows in this guide uses that same, already-defended number.
STEP 02 OF 10
Deavo’s valuation methodology states the core method in three steps: seller’s discretionary earnings, multiplied by an adjusted sector multiple, produces "a realistic low-high benchmark range — not a single magic number" (deavo.ai/valuation). For a trades-and-services target, deavo’s sector benchmark hub publishes a wider 2.5–4.0× SDE band (deavo.ai/learn/industry/trades) alongside a separate 2.9× median figure on the valuation page above — use the median as your starting anchor and the band as the range diligence findings can move you within.
On the $421,000 SDE figure from Step 1, the band produces a range of roughly $1,052,500 to $1,684,000, anchored around a median-based estimate of roughly $1,220,900. That range, not a single number, is the honest output of this method at this stage — narrowing it further is what the rest of this guide is for.
STEP 03 OF 10
Deavo’s own tool cross-checks its SDE-based figure "against a revenue multiple for your sector before the range is shown" (same source above) — a useful discipline even without access to the tool itself. If the target’s revenue is roughly $1,050,000, the $1,220,900 median-based valuation implies an enterprise-value-to-revenue ratio of roughly 1.16×.
This is a consistency check, not an independent benchmark — no Canadian source in this environment publishes a standalone typical revenue multiple for the trades sector to compare it against. What the check catches is an SDE-based figure that has become disconnected from the business’s actual top line, which usually signals an error in the recast or the multiple selection rather than a genuinely unusual business.
STEP 04 OF 10
Deavo names four factors that shift the multiple within a sector’s range: growth trend, profit trend, years established, and owner-dependence — "the same factors buyers weigh" in practice (same source above). A target with several consecutive years of revenue and margin growth, a long operating history, and processes that do not depend on the current owner’s personal relationships or specific expertise justifies pricing toward the top of its band.
The reverse combination — flat or declining trends, a recently started operation, and a business that would struggle to retain its customer base if the current owner left tomorrow — justifies pricing toward the bottom, regardless of how strong the trailing SDE figure looks in isolation.
STEP 05 OF 10
Of the four adjusters, owner-dependence tends to move a valuation the most in practice, because it speaks directly to whether the recast SDE figure in Step 1 will actually be available to a new owner. A business where the current owner personally holds every key customer relationship, every specialized skill, and every supplier negotiation is a materially riskier purchase than one with documented processes, a trained second-in-command, and diversified customer relationships — even at an identical recast SDE.
Ask directly: if the current owner took a two-month medical leave tomorrow with no warning, what would happen to revenue? A business that would barely notice deserves a materially different multiple than one that would collapse.
STEP 06 OF 10
An informal SDE-multiple estimate and a credentialed valuation from a Chartered Business Valuator are different exercises with different purposes. Canada’s CBV Institute replaced its Valuation Practice Standards effective January 1, 2026, applying to "independent valuation engagements beginning on or after" that date and setting "the minimum requirements for a valuator to establish a credible and properly supported conclusion of value" (cbvinstitute.com). CBVs and Students "must comply with and adhere to all Practice Standards," which "represent the minimum required standard of care" for the profession.
A separate family of standards covers Fairness Opinions — "a conclusion as to the fairness of a proposed transaction to security holders… from a financial point of view" (same source above) — the specific product typically required for a shareholder dispute, a related-party transaction, or a board seeking independent cover on a proposed deal. Other families on the same standards page cover Advisory Reports, Expert Reports for quantum-of-loss disputes, and Limited Critique Reports — each a distinct product for a distinct purpose, not interchangeable labels for the same output.
STEP 07 OF 10
A quick, informal SDE-multiple estimate is the right tool for an initial screening decision — deciding whether a business is even in the right price range to pursue, or setting a starting offer range before formal diligence begins. It is the wrong tool where the number needs to withstand scrutiny from a court, a minority shareholder, a regulator, or a lender relying specifically on an independent conclusion of value.
For a shareholder buyout, an oppression remedy dispute, a related-party transaction requiring fairness cover, or a formal financing condition that names a credentialed valuation, engage a Chartered Business Valuator working under the current standards from Step 6 rather than relying on a multiple-based estimate, however carefully built.
STEP 08 OF 10
A CBV working under the current standards may apply methods beyond a simple SDE multiple — a discounted cash flow analysis, a comparable-transactions analysis, or an asset-based approach — and may apply adjustments an informal multiple-based estimate does not, including a discount for lack of marketability or a control premium that reflect the specific interest actually being valued, not just the underlying business as a whole.
Do not treat a CBV’s formal conclusion and an SDE-multiple estimate as two answers to the same question that should match. They can legitimately diverge because they are answering related but different questions — the value of the whole operating business under one set of assumptions, versus the value of a specific interest in it, adjusted for how easily that interest could actually be sold and how much control it carries, under a formal, standards-governed engagement.
STEP 09 OF 10
Where the estimate lands toward the top or bottom of its sector band because of a specific adjuster from Step 4 or 5, write down the reason — not just the resulting number. "Priced at the top of the band due to five years of consistent double-digit growth and a fully documented operations manual" is a defensible statement a counterparty can engage with. "We think it’s worth $1.4 million" is not.
This discipline matters as much for a buyer building an offer as for a seller defending an asking price — an undocumented number invites a negotiation about the number itself, while a documented one invites a negotiation about the specific facts behind it, which is a more productive conversation for both sides.
STEP 10 OF 10
Pull the pieces together on the running example: $421,000 recast SDE, a trades-sector band of 2.5–4.0×, and a median-anchored starting point of roughly $1,220,900. Strong growth and profit trends, a decade of operating history, and low owner-dependence would justify moving toward the top of the range, near $1,684,000. Flat trends, a recent start, and high owner-dependence would justify moving toward the bottom, near $1,052,500.
Whichever end of the range the facts support, cross-check the result against revenue as in Step 3, document the specific adjusters that drove the placement as in Step 9, and confirm — before relying on the number for anything beyond an initial screening decision — whether the situation actually calls for the formal, standards-governed engagement described in Steps 6 through 8 instead.
The distinction in Steps 6 through 8 is the one most often collapsed in practice, usually by whichever side of a negotiation benefits from treating an informal estimate as though it carried the weight of a formal opinion. It does not, and presenting it that way — to a lender, a minority shareholder, or a court — can undermine the credibility of the number entirely, even where the underlying arithmetic was reasonable.
Know which exercise you actually need before you start, not after someone on the other side of the table asks who prepared the number and under what standard.
It is a reasonable, defensible tool for screening and for setting an opening negotiating range, particularly once the adjusters in Steps 4 and 5 are applied. For a final, binding price in a dispute or a formal transaction, a credentialed valuation is the more defensible foundation.
In practice, owner-dependence tends to swing a valuation more than the other three adjusters, because it speaks directly to whether the business's earnings will actually transfer to a new owner rather than leaving with the current one.
No — most small, straightforward owner-operator sales proceed on negotiated multiples without a formal valuation. A CBV becomes necessary where a specific legal, financing or governance requirement calls for an independent, standards-governed conclusion of value.
Yes, and often should. An informal SDE-multiple estimate and a formal CBV valuation can reasonably produce different figures because they may use different methods, different assumptions, and are frequently answering different questions about what specifically is being valued.
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