Book Value
Value of a business's assets as recorded on the balance sheet, minus its liabilities. Represents the historical cost of the assets, rarely their actual market value.
Definition
Book value corresponds to what the accounting records show as the net value of the business: total assets minus total liabilities, as reported on the balance sheet. These amounts reflect the historical cost of the assets, less accumulated depreciation — not their current market value.
In French-language Quebec documentation, you’ll see valeur comptable used for the same concept.
For example, a piece of equipment bought for $200,000 ten years ago might appear on the balance sheet at $40,000 (after depreciation), while its real resale value is $120,000. The opposite is also possible: a building acquired in 2005 could be worth far more than the amount on the books.
Why book value matters in a business sale
Book value is often the first number an owner looks at to estimate what their business is worth — and it’s almost always an underestimate. For a profitable business, book value completely ignores goodwill, the value of the customer base, reputation, recurring contracts, and earnings power. Yet those intangibles make up the bulk of the value of an SME in services or distribution.
Confusing book value with market value can lead to two costly mistakes. First: selling at too low a price by relying only on the books. Second: setting unrealistic expectations by assuming market value will always be higher, without factoring in actual profitability.
Book value still has its uses as a reference point. It sets the floor in the adjusted net asset value method and lets you measure the gap between what the business owns (its tangible assets) and what it’s really worth (its ability to generate profits). The wider the gap, the more important the goodwill — which is generally a positive sign for the seller.
What every seller should know
- Book value almost always underestimates the real value of a profitable business, because it doesn’t account for goodwill or earnings power.
- A serious buyer will never rely only on book value — they’ll use earnings-based methods (EBITDA multiples) or cash flow.
- If your business’s market value is below its book value, that’s a red flag: the business isn’t generating enough return on its assets.
- Before going to market, have your assets appraised at fair market value — gaps with book value can work in your favour during price negotiations.