Question 1

How are software development firms valued in Canada?

Accepted Answer

Two primary methods: (1) SDE multiple for owner-operated businesses (Seller's Discretionary Earnings × industry multiple of 2.5–4.5×), and (2) EBITDA multiple for larger businesses (EBITDA × 5–9×). Asset value is added back for inventory and real estate where material.

Question 2

What's the difference between SDE and EBITDA?

Accepted Answer

SDE (Seller's Discretionary Earnings) = EBITDA + owner's compensation + owner perks. Used for smaller businesses where the owner works in the business. EBITDA is used for businesses where ownership is separated from management. SDE multiples are typically lower than EBITDA multiples for the same dollar of cash flow.

Question 3

What pushes a software development firm to the high end of the multiple range?

Accepted Answer

Strong value drivers: Repeat enterprise clients; Domain expertise; Developer team. Plus: 3+ years of growth, customer concentration under 20%, owner not required day-to-day, clean financials, defensible market position.

Question 4

What pushes a software development firm to the low end?

Accepted Answer

Customer concentration over 40%, declining revenue, owner-dependent operations, key employee risk, deferred maintenance/capex, audit issues, customer churn, lease near expiry.

Question 5

Do I need a formal valuation to sell?

Accepted Answer

Not always. For Main Street businesses ($300K-$3M), a defensible market-based valuation suffices. For larger transactions, an independent CBV (Chartered Business Valuator) report adds credibility and defends against tax disputes. SAZ coordinates both.

Software Development Firm valuation in Canada.

How we value software development firms.

For smaller software development firms ($300K–$3M)

For larger software development firms ($3M+)

What pushes a software development firm to a premium valuation.

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