Multiply a negative earnings figure by any multiple and the arithmetic breaks before the negotiation even starts. Pricing a business that is losing money means abandoning the multiple-of-earnings approach entirely, not discounting it.
Key takeaways
A multiple-of-earnings approach assumes there is a positive number to multiply. On a business that is losing money, that assumption fails before the first calculation — and a buyer or fund principal who reaches for the same tools used on a profitable target is measuring the wrong thing entirely.
Deavo.ai’s own published median SDE multiples across six sectors — 2.1× restaurants, 2.4× retail, 2.9× trades, 3.0× health & wellness, 3.2× professional services, 3.6× manufacturing, labelled “illustrative medians for research context only… not an appraisal” — are built on positive seller’s discretionary earnings. Multiply a negative or near-zero SDE by any of those figures and the arithmetic returns a negative or meaningless number. The valuation question on a loss-making target isn’t “what multiple applies,” it’s “what method applies instead.”
Canada’s Chartered Business Valuator standards, effective for engagements beginning on or after January 1, 2026, are organized in families beyond the full valuation conclusion most buyers picture: Valuation Practice Standards 100/110/120/130 for a formal conclusion of value, but also Advisory Reports (210/220/230), Limited Critique Reports (410/420/430), and Fairness Opinions (510/520/530) — a conclusion on “the fairness of a proposed transaction to security holders… from a financial point of view.” A distressed target may not need, or support, a full valuation conclusion at all; a narrower engagement can still give a fund principal a defensible number without pretending a loss-making business has a stable, positive earnings base to conclude on. The standard PDFs themselves were not read for this article — nothing here describes the pre-2026 report tier names, only the current standard numbers and effective date.
Treadstonelaw.ca is direct about the realistic outcome: “a losing business can still sell, but to a narrower and more selective pool of buyers.” Some buyers actively seek underperforming companies to rehabilitate, focused on “assets, location, licences, contracts, or customer relationships that have value on their own even while overall profitability is weak.” And the story matters as much as the number: “being able to explain why the losses happened matters as much as the number itself” — a temporary, explainable downturn reads very differently to a buyer than structural decline with no plan to reverse it.
A companion treadstonelaw.ca article lists exactly where a struggling business hides its real condition: request “a full list of creditors and amounts owed, not just what appears on the balance sheet,” ask about unpaid wages, vacation pay or benefits, identify any supplier owed a significant balance who could refuse to keep supplying after a change of ownership, and confirm the lease is in good standing “directly with the landlord, not only through the seller’s account — rent arrears are common in distressed businesses.” A business under pressure “often starts making decisions differently: stretching payments to suppliers, falling behind on rent or remittances, delaying equipment maintenance” — symptoms that don’t show up in a P&L but change the real price.
Where value can survive a losing P&L
The structurally sound approach on a loss-making target starts from the bottom, not the top: sum the realizable value of the assets a buyer would actually keep, subtract the liabilities the buyer would actually assume, and treat that as the price floor — the number below which a rational buyer has no reason to go regardless of any story about the business’s future. Anything a buyer pays above that floor is a negotiated premium for a specific, identifiable reason: a licence, a location, a contract, a customer relationship — not a market convention, because none is published for this situation.
Illustrative only — the figures are a drafting choice, not a benchmark. A struggling manufacturer carries $1,400,000 of realizable equipment and inventory value against $600,000 of liabilities a buyer would assume (accounts payable, a small equipment loan) — a floor of $800,000. The business also holds a hard-to-obtain provincial processing licence a buyer specifically wants and cannot easily obtain on its own. The negotiated price of $1,050,000 is not derived from any earnings multiple; it is the $800,000 asset floor plus a $250,000 premium the buyer is willing to pay for the licence alone, with the seller’s explanation for the losses — a since-resolved supply disruption, not structural decline — supporting the buyer’s decision to pay above the floor at all.
Where the diligence above turns up structural decline with no credible explanation, or where the asset floor itself is negative once real liabilities are counted, treadstonelaw.ca frames the honest alternative plainly: “an orderly wind-down is a legitimate alternative to consider” rather than forcing a sale at an unrealistic price or continuing losses indefinitely. That is a structural outcome of the pricing logic above, not a failure of it — if there is no defensible floor and no credible story, there may genuinely be no deal.
No. No Canadian valuation body, market source, or platform used in this hub publishes one — describe the mechanism (an asset-based floor plus a negotiated premium for specific value) rather than citing a discount figure nobody has actually published.
Possibly, but likely as a narrower engagement type than a full valuation conclusion — CBV Institute’s standards also cover Advisory Reports and Limited Critique Reports, both lighter-weight than Practice Standards 100/110/120/130. See the CBV Institute standards page for the full family of report types.
Rent and lease standing checked directly with the landlord, and unremitted statutory deductions or supplier balances not visible on the balance sheet — both named explicitly in treadstonelaw.ca’s own diligence checklist for a struggling target.
A short call walks through the asset-floor approach against your specific target’s balance sheet.
Nobody publishes Canadian transaction data, so every valuation in this country quotes an American benchmark. We are building the Canadian one — multiples, asking-to-sale spreads and days on market, by sector and by city. Leave an email and you will see it first.
No pitch, no listings. One email when the first report lands.
