What is a trades business worth?

A trades business is generally worth a multiple of its seller’s discretionary earnings, adjusted up or down for how much the business depends on the owner, how much of its revenue is contracted or recurring, and the condition and ownership of its vehicles and equipment. Two shops with near-identical revenue can sell for very different prices once a buyer prices in those differences.

Start with seller’s discretionary earnings, not revenue

Revenue is a poor starting point for valuing a trades business, because so much of it is pass-through material cost. A forty-thousand-dollar kitchen renovation might carry a large share in cabinets, counters and fixtures that have nothing to do with the shop’s actual profitability. Seller’s discretionary earnings strips revenue down to what the business actually generates for its owner: net profit, plus the owner’s salary, plus personal expenses run through the company, plus one-time costs that will not recur under new ownership. That figure, not the top line, is what buyers and lenders build an offer around.

Owner dependence is priced into the number

A buyer looking at a trades business will ask, directly or indirectly, what happens to the client relationships, the estimating and the crew if the current owner disappears for three months. A shop where the owner personally quotes every job, runs the crew and holds the only relevant licence reads as riskier than one with an estimator, a lead hand and licensed staff beyond the owner. That risk shows up as a lower multiple, a larger holdback, or a longer transition period built into the deal — sometimes all three at once.

Contract backlog and recurring revenue

A trades business with signed contracts, an active job backlog and recurring service or maintenance agreements is worth more, all else equal, than one that starts every month from zero. Backlog gives a buyer visibility into revenue for months after closing, which lowers the perceived risk of the purchase. Buyers typically ask for a schedule of work-in-progress — jobs started but not finished, deposits collected, and materials already purchased — so the price reflects work that is genuinely unbilled rather than double-counting revenue the seller has effectively already earned.

Equipment, vehicles and licensing

Vehicles and equipment are sometimes priced apart from the earnings multiple rather than folded into it, particularly in fleet-heavy trades like excavation, HVAC or plumbing, where trucks and machinery represent a real share of replacement cost. A buyer’s lender will often want an independent equipment appraisal rather than relying on book value, since depreciated book value and actual resale value frequently diverge in either direction. Licensing matters too: a trade where certification is scarce or takes years to obtain — a master electrician or a licensed gas technician, for instance — tends to support a stronger price than a trade with a lower barrier to entry, because the licence itself is part of what a buyer is paying for.

Illustrative multiples, treated with caution

Industry discussion of small trades businesses often frames pricing in terms of a multiple of seller’s discretionary earnings, with owner-dependent, single-truck operations discussed at the lower end and multi-crew shops with management depth and recurring revenue discussed at the higher end. Any specific number circulating in a coffee-shop conversation or an online forum should be treated as a general reference point, not a quote for a particular business, since actual pricing depends on the buyer pool, financing conditions, the specific trade and the year the deal closes, and it moves. A formal valuation from a qualified professional, not a rule of thumb picked up secondhand, is what a serious transaction should be priced against.

What tends to move the number in practice

• Whether the owner is still the only person who can estimate or run a job
• How much revenue is contracted, recurring or covered by a service agreement
• The age, condition and ownership status of the vehicles and equipment
• Whether licences held personally can transfer or be replaced without disrupting operations
• Customer concentration, meaning how much revenue rides on one or two general contractors

Common add-backs, and how they need to be documented

Trades shops tend to carry a specific set of add-backs that a buyer will want documented rather than taken on faith. A spouse or adult child drawing a salary for occasional bookkeeping, a personal vehicle running through the company alongside the work trucks, tools or equipment bought for a one-off job that will not recur, and cash paid to casual labour on smaller residential jobs are all common in this space. Each of these can be a legitimate add-back that raises seller’s discretionary earnings above what the tax return shows on its own, but each one also needs a paper trail, because a buyer’s lender will discount anything it cannot verify. A shop that has kept clean books with add-backs already itemized, rather than reconstructed at listing time, tends to move through a sale faster and defend its asking price more easily than one where the accountant has to rebuild three years of records from bank statements.

How the specific trade shifts where value concentrates

The trade itself also shifts where value concentrates. An electrical or gas-fitting business leans on scarce, regulated certification, so licence portability and who can legally supervise the work matter more than fleet size. A landscaping or general handyman business, where entry barriers are lower, tends to lean more on customer relationships, repeat contracts and brand reputation in a specific municipality, because there is less of a licensing moat to protect the price. A roofing or excavation business often carries more of its value in heavy equipment and bonding capacity for larger commercial work. None of these patterns changes the basic method — earnings times a multiple adjusted for risk — but they do change which risk factors a buyer weighs most heavily when they build their offer.

How a deal is valued is a separate question from how the proceeds are taxed once a price is agreed. The CRA’s own guidance on selling a business is a reasonable starting point for that side of the transaction, but it is not a substitute for working through the specific structure with an accountant and a qualified valuator before a number is finalized.