Business Valuation Questions & Answers

Under the federal Expropriation Act (R.S.C., 1985, c. E-21), compensation must include four components:

1. Market Value the price between a willing buyer and willing seller with no compulsion
2. Disturbance Damages moving costs, business losses, and costs incidental to the taking
3. Injurious Affection reduction in value of any retained portion of the property
4. Special Economic Advantage compensation for unique financial benefits tied to that specific location

The critical failure in most government offers is that they use standard approaches that miss the intangible assets proprietary systems, customer trust, location-dependent goodwill, and operational know-how. The Crown is generally required to pay the owner's reasonable legal and appraisal costs, and interest at 6% or more accrues on delayed payments.

Fair Market Value in a forced sale is the highest price obtainable in an open market between a willing buyer and a willing seller, both informed and acting without compulsion. The forced or distressed nature of the taking cannot legally be used to reduce the compensation owed.

The Supreme Court of Canada confirmed in St. John's (City) v. Lynch, 2024 SCC 17 that the “no better, no worse” principle applies the owner must be restored to the economic position they would have been in had the expropriation not occurred. This includes intangible business assets, goodwill, and disturbance damages.

Yes. Under the federal Expropriation Act and provincial equivalents, the government can compel the surrender of property including business premises for a public purpose. However, owners have significant rights:

• A 30-day window to file a written objection after receiving a Notice of Intention
• The right to a formal appraisal report before any offer is made
• The right to accept an offer without prejudice and still pursue additional compensation in Federal Court
• The right to recover reasonable legal, appraisal, and professional fees from the Crown

Budget 2025 changes to the Expropriation Act have accelerated timelines for federal infrastructure projects, making it more urgent than ever to engage an experienced valuator immediately upon receiving notice.

In Canadian divorce proceedings, a privately owned business is valued at Fair Market Value. Courts require a defensible, documented report that can withstand cross-examination. The most common errors are: failing to identify intangible assets such as goodwill and customer relationships; using normalized earnings without forensically testing sustainability; and applying standard multiples without stress-testing transferability.

In most privately owned businesses, intangible assets represent 70–90% of total value. Eric Jordan, CPPA applies the 25 Factors Affecting Business Valuation and the 5 Senses Inspection Report to produce court-ready reports.

In a Canadian shareholder or partner dispute, business value is determined at either Fair Market Value or fair value depending on the jurisdiction and the terms of the shareholder agreement. Fair value used in oppression remedy cases typically does not apply minority discounts.

The most contested issues are: owner compensation adjustments; sustainability of normalized earnings; identification of intangible assets; and the application of control and minority discounts. Eric Jordan, CPPA has 28 years of experience as an expert witness in these proceedings.

CRA defines Fair Market Value as the highest price obtainable in an open market between informed, prudent parties dealing at arm's length with no compulsion. CRA scrutinizes valuations for s.85 rollovers, s.86 reorganizations, estate freezes, share transfers, and charitable donations of private company shares.

A defensible CRA valuation must apply a recognized methodology, document all assumptions, support intangible asset values with evidence, and normalize earnings with clear justification. CRA has authority to reassess and impose penalties where a valuation is found to be unreasonable or undocumented.

The value of your business when sold is its Fair Market Value the price a well-informed buyer would pay with no compulsion. This is determined by three components: tangible asset value; earnings capacity (normalized and stress-tested); and intangible asset value including customer relationships, proprietary systems, brand, and management depth.

In most privately owned Canadian businesses, intangible assets represent 70–90% of total value yet standard accounting-based approaches routinely miss this entirely.

Business valuation for estate planning requires a Fair Market Value report that satisfies CRA requirements for estate freezes, succession transfers, deemed disposition at death, and inter vivos gift transactions. CRA audit risk is highest where intangible assets are significant and undocumented.

For family succession planning, the valuation also needs to address the transferability of value whether the business can operate successfully without the current owner since this directly determines how much value can realistically pass to the next generation.

Canadian courts require expert valuation evidence that is prepared by a qualified expert witness; based on a disclosed and reproducible methodology; supported by documentary evidence; and defensible under cross-examination. Courts have rejected valuations that rely on unexplained rules of thumb or unsupported intangible asset assumptions.

Eric Jordan, CPPA has 28 years of court-proven experience as an expert witness in shareholder disputes, divorce proceedings, expropriation cases, and CRA audits across Canada.

The highest-return actions to increase business value before a sale are:

1. Reduce owner-dependency buyers pay a premium for businesses that run without the owner present
2. Document systems and processes proprietary operational systems are a measurable intangible asset
3. Strengthen and diversify the customer base concentration risk in a single customer reduces value significantly
4. Stabilize and normalize earnings three to five years of clean, consistent financials support a higher multiple
5. Build management depth a capable team dramatically increases transferable value

A management buyout is valued at Fair Market Value. The management team's existing knowledge of the business, relationships with customers and suppliers, and their lower transition risk compared to an outside buyer are all relevant factors. The valuation must satisfy both the selling owner and any financing institution providing acquisition debt.

Key issues in MBOs: sustainability of normalized earnings post-transition; degree to which value is tied to the exiting owner versus the management team; intangible asset transferability; and deal structure adjustments for vendor financing or earnouts.

Goodwill impairment testing requires a company to compare the carrying value of goodwill on its balance sheet against the recoverable amount of the reporting unit. Under IFRS (IAS 36), this is done annually or whenever there is an indication of impairment. Under ASPE, private companies may amortize goodwill instead.

If the recoverable amount falls below the carrying value, goodwill must be written down which directly impacts reported earnings. The test requires a current Fair Market Value assessment prepared by a qualified valuator using a documented methodology.

A minority interest is typically valued at a discount to the pro-rata share of total enterprise value, reflecting the lack of control the minority holder has over distributions, management decisions, capital allocation, and exit timing. The minority discount is not automatic its size depends on the rights attached to shares, the shareholder agreement terms, voting structure, history of dividends, and the nature of the business.

Canadian courts and CRA both accept minority discounts where properly justified. In oppression remedy cases, courts may order that no minority discount be applied.