Enterprise Value (EV)
The total value of a business including equity and net debt. It's the price the buyer pays for the entire operation, before deducting debt.
Definition
Enterprise value (EV) represents the total acquisition cost of a business. It’s calculated by adding the value of equity (what the shareholders own) and net debt (interest-bearing debt minus available cash). Put differently, it’s the amount a buyer has to put up to take full control of the operation.
In French-language Quebec documentation, you’ll see valeur d’entreprise used for the same concept.
The most common formula in the Quebec SME market is simple: EV = EBITDA × multiple. For example, a business generating $500,000 in EBITDA with a 5x multiple would have an enterprise value of $2.5 million.
Why enterprise value matters in a business sale
Enterprise value is the starting point of every price negotiation. When a buyer puts forward an offer, they reason in terms of EV — not in terms of what you, the seller, will receive in your bank account. The distinction is fundamental: EV includes the business’s debts that the buyer will have to assume or repay.
What you’ll actually pocket corresponds to the enterprise value minus net debt. If your business is worth $3 million but carries $800,000 in debt, the value of your shares is $2.2 million. A seller who confuses enterprise value with net sale proceeds risks being disappointed at the negotiation table.
Understanding this distinction also lets you make informed decisions before going to market. Paying down debt before the sale doesn’t change the EV, but it directly increases what you’ll receive. Conversely, taking on debt to finance productive assets can increase the EV if those assets generate additional revenue.
What every seller should know
- Enterprise value and the value of your shares are two different numbers — the second one determines your cheque at closing.
- The EV = EBITDA × multiple formula is the SME market standard, but the multiple varies considerably depending on the sector, the size, and the quality of the business (generally between 3x and 7x for Quebec SMEs).
- Excess cash and working capital can be added to or subtracted from the final price — these adjustments are often the subject of tight negotiations.
- A business broker will always present EV and net value separately to avoid any confusion during discussions with potential buyers.