Anonymised, illustrative composite. An HVAC contractor's first offer landed at the bottom of the trades multiple band, priced down for exactly the gaps its own broker listed as the sector's biggest diligence snag. Fixing them, not growing revenue, is what moved the price.
At a glance
The owner had built a profitable HVAC service business over eighteen years and decided to sell. A broker's initial valuation used seller's discretionary earnings of $420,000 and pointed to deavo's own trades & construction sector snapshot — a 2.5–4.0× SDE band, a typical 6–9-month close, and owner dependence named as the sector's number-one diligence snag: “how much the owner personally handles sales, quoting, estimating or key relationships.”
The first LOI came in at 2.6× SDE — $1,092,000, near the bottom of the band — conditioned on a due-diligence list that read like the sector's own known snag list: the owner personally handled almost all estimating and key-account relationships, the firm's WSIB clearance had lapsed and was not on hand, three years of tax records were available against a longer retention duty, and nobody had prepared for the GST/HST treatment of the sale at all. The same sector snapshot names the specific playbook a buyer checks: “licensing, WSIB clearance, warranty tail and technician retention.”
Initial LOI: 2.6× $420,000 SDE = $1,092,000. Final agreed price after remediation: 3.4× $420,000 SDE = $1,428,000. The delta — $336,000 — sits entirely on the multiple, not on any change in the underlying earnings; the business made the same money at close that it made when the first offer landed.
Two records questions decided how the deal was structured, and getting them right was what let the price move. First, structure: treadstonelaw's own comparison of the two structures lays out the trade-off plainly — in an asset purchase, “you are not buying the company's history” and unknown liabilities stay with the seller's corporation, while in a share purchase “buyers inherit everything.” The buyer chose an asset purchase specifically to avoid inheriting the seller's historical exposure, which made clean current records — not clean historical ones — the actual diligence question.
Second, tax: ITA s.230(4)(b) requires records retained “until the expiration of six years from the end of the last taxation year” they relate to; the seller had three years assembled and needed six months to reconstruct the rest. And treadstonelaw's own guide to HST on an Ontario business sale explains the registration trap that catches most small asset sales: the GST/HST joint election that lets a share of the purchase price move tax-free “is not available where the seller is a GST/HST registrant and the buyer is not,” and the election itself must be filed with the buyer's own GST/HST return, not merely signed at closing. Buyer and seller registered and pre-filed ahead of closing rather than treating it as a closing-day signature.
Had the seller closed at the first offer rather than remediating, the same business, generating the same $420,000 in earnings, would have sold for $336,000 less — a gap attributable entirely to unresolved licensing, clearance, records and structuring questions the buyer's own diligence checklist was always going to ask. Records remediation, not revenue growth, was the higher-leverage five months of work available to this owner.
The deal closed as an asset purchase at 3.4× SDE, seven months after the initial LOI. Four of the firm's five lead technicians were documented under multi-year retention arrangements, directly addressing the owner-dependence concern by showing key client relationships did not begin and end with the owner. For what a buyer specifically checks on the licensing side of a trades-business sale, see how licences and permits get handled when a company sells.
The gap was visible before any buyer found it: the firm's own SDE add-back schedule, prepared for the broker, carried a large line for “owner compensation — sales/estimating” with no documented plan for who would perform that function after closing. The CIM disclosed the exact risk a buyer would later price down for; the fix was answering the question the seller's own paperwork had already raised, before a buyer had to ask it. For how the same records-first discipline shows up inside the business rather than at sale time, see how a training matrix caught forty expired credentials.
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