A retail business seems easy to value. Sales are recorded at the register, goods are on the shelves, and the premises are visible from the street. Yet, it is one of the sectors where the gaps between the asking price and the paid price are the widest.

Three reasons explain these discrepancies. First, the owner and their family often work in the store, which clouds the measurement of profit. Second, inventory represents a large portion of the value, and a portion of that inventory is no longer worth its cost. Finally, the value relies on a location that the merchant generally does not own: the lease alone can make or break the transaction.

This guide is intended for retail business owners preparing for sale and for buyers who want to make a fair offer. It covers independent businesses, those affiliated with a banner, or franchises: hardware stores, clothing boutiques, sports stores, pet stores, bookstores, and specialty shops.

Executive summary: The value of a retail business is usually calculated in two parts. First, a multiple of normalized profit (EBITDA for a business managed by a team, or seller’s discretionary earnings for a small business where the buyer will work themselves) covers goodwill, leasehold improvements, and equipment. Then, sellable inventory is added at its cost, established by a count at closing. Multiples often range between 1.5 and 3.5 times EBITDA. They vary based on sales trends, gross margin, the duration and terms of the lease, affiliation with a banner, and dependence on the owner.

Why a retail business is valued differently

• The owner is often a disguised employee. In a small business, the owner handles the register, purchasing, scheduling, and accounting. If they do not pay themselves a market salary, the reported profit is misleading.

• Inventory is a distinct and volatile asset. It can represent as much as, or even more than, the value of the goodwill. Its value depends on its freshness, turnover, and the season.

• The location is leased. Without a sufficiently long and assignable lease, the goodwill is almost worthless.

• Competition evolves quickly. Online commerce, big-box stores, and changes in traffic (construction, parking, new shopping centers) can alter sales in a matter of months.

Step 1: Choose the right measure of profit

EBITDA

EBITDA (earnings before interest, taxes, depreciation, and amortization) measures the profitability of a business managed by a team, where the owner acts as a manager paid at market rates. This is the measure used by strategic buyers, investors, and lenders for medium-sized businesses.

Seller’s discretionary earnings

For a small business where the buyer will work full-time themselves, we often use seller’s discretionary earnings. This is EBITDA plus the compensation of a single owner-operator. It answers the buyer’s question: "How much will this business earn me, including my own compensation?"

Multiples applied to discretionary earnings are lower than those applied to EBITDA, since the measured profit is higher. The key is to never mix the two: an EBITDA multiple applied to discretionary earnings overvalues the business.

Which measure should you choose?

Step 2: Normalize the profit

Start with the financial statements from the last three years and the results of the current fiscal year. Remove personal and non-recurring items, then add what is missing to reflect normal operations.

Adjustments specific to retail

• Owner's salary: Compare it to the cost of a store manager in your region. An owner paying themselves $40,000 for 60 hours of work per week is overstating their profit.

• Unpaid or underpaid family: A spouse doing accounting in the evening or a child working weekends without pay will need to be replaced by employees. The minimum wage in Quebec has been $16.60 per hour since May 1, 2026, excluding social charges.

• Family members paid without working: The opposite, which should be removed from the calculation.

• Rent: If the building belongs to the seller or a related entity, adjust the rent to market rates, as the buyer will sign a new lease.

• Unaccounted shrinkage: Theft, errors, and breakages reduce the margin. If inventory is never physically counted, the gross margin on financial statements may be overvalued.

• Personal expenses: Vehicle, cell phone, meals, merchandise taken from the store for personal use.

• Non-recurring items: One-time subsidies, temporary closures, exceptional liquidations, major renovations.

Undeclared cash sales

Sometimes a seller mentions cash sales "on top" of declared ones. A buyer should never pay for these sales: they cannot be verified or presented to a lender, and in a share purchase, they expose the buyer to tax assessments for previous years. The price must be based on declared sales. See Financial statement analysis: keys to a successful purchase.

Step 3: Analyze sales and gross margin

The point-of-sale system is the best source of information for a retail business. Request detailed extracts for at least 24 to 36 months.

What to look for

• Sales trends: Month-by-month over three years to distinguish real growth from inflation or a strong season.

• Sales by category: Which product families drive revenue and margin?

• Gross margin by category: An increase in sales in a low-margin category may mask a decline in profitability.

• Number of transactions and average basket: Sales growth driven solely by price increases, with fewer customers, is a warning sign.

• Seasonality: Many businesses generate a large portion of their sales in a few weeks (Christmas, back-to-school, summer season). A transaction closing just before or just after the high season has different liquidity needs.

• Online sales: What portion of sales comes through the website or platforms, at what margin, and who owns the accounts?

• B2B sales: A hardware store or specialized supplier may have significant commercial accounts, sometimes personally tied to the owner.

Performance indicators

Compare the business to its industry and its own past results: sales per square foot, gross margin, inventory turnover, rent-to-sales ratio, payroll-to-sales ratio. Significant discrepancies with comparable businesses, in either direction, must be explained.

Step 4: Treat inventory separately

In most retail sales, the price is presented in two parts: a price for goodwill, leasehold improvements, and equipment, plus inventory, paid at its cost based on a count at closing. This is often referred to as a "plus inventory" price.

This structure protects both parties. The seller is paid for the merchandise actually present on closing day, and the buyer does not pay for inventory that might have dwindled between the offer and the signature.

Inventory count at closing

Specify in the letter of intent and the purchase agreement:

• who performs the count: Ideally an independent firm, in the presence of both parties;

• the date and time: Often after store closing, the day before the transaction closes;

• the valuation method: At acquisition cost (not selling price), based on the most recent invoices, net of discounts and rebates obtained;

• what is excluded: Obsolete, damaged, expired, or off-season merchandise; consigned goods; merchandise set aside or paid for by customers; returns to be sent to suppliers;

• what is reduced: Slow-moving merchandise, for example, items with no sales for over 12 months, taken at a fraction of their cost;

• the cap: A maximum amount of inventory the buyer agrees to pay, to prevent a seller from filling shelves right before closing.

Inventory turnover

Inventory turnover (cost of goods sold divided by average inventory) indicates how many times inventory is renewed in a year. Low turnover means money is tied up on the shelves and part of the inventory is aging. Analyze the age of inventory by category using the point-of-sale system: date of last purchase, date of last sale.

Advice for the buyer: Perform an initial analysis of inventory age before making your offer. If 20% of the inventory hasn't moved in a year, state this in the letter of intent. This will be much easier to negotiate than at the time of the physical count.

Step 5: Evaluate the lease and location

For a retail business, the lease is often the most important asset, and the one least analyzed.

Questions to ask

• Remaining duration: How many years are left, including renewal options? A buyer financing the purchase over seven years will want a lease of at least the same duration.

• Renewal options: Do they exist, at what rent, and are they transferable to the buyer?

• Assignment: Does the lease allow for assignment to the buyer (asset purchase)? Is a change of control of the tenant company (share purchase) treated as an assignment? The Civil Code of Quebec provides that a landlord cannot refuse an assignment without a serious reason, but commercial leases often contain more restrictive clauses. Read the lease and obtain written consent from the landlord before closing.

• Rent: Base rent, operating expenses, property taxes, percentage of sales in certain shopping malls. Calculate the total occupancy cost as a percentage of sales and compare it to similar businesses.

• Sensitive clauses: Relocation by the landlord, demolition, exclusivity (does the landlord commit to not renting to a competitor?), mandatory opening hours, restoration at the end of the lease.

• Personal guarantee: Did the seller personally guarantee the lease? The landlord will likely require the same guarantee from the buyer.

The location itself

Visit at different times of the week. Inquire with the municipality about roadwork, development projects, and planned zoning changes. A two-year construction site in front of the door can cause sales to drop significantly.

Consequence on value: A lease of less than three years with no renewal option, or one that is not assignable, justifies a significantly lower multiple, sometimes a goodwill value near zero. A long lease, at a reasonable rent, with renewal options, supports the high end of the range.

Step 6: Account for banners, franchises, and suppliers

Affiliated or franchised business

A banner or franchise brings notoriety, purchasing conditions, and support, which can justify a higher multiple. It also imposes conditions on the sale:

• approval of the buyer by the franchisor or banner, with its own financial and experience criteria;

• a right of first refusal by the franchisor, which may purchase instead of your buyer under the same conditions;

• transfer fees and mandatory training for the new owner;

• renovation or compliance work required at the time of transfer, sometimes significant;

• the remaining term of the franchise or affiliation agreement and its renewal terms.

Work required upon transfer is deducted from the price, in whole or in part. Obtain the franchisor's written position early in the process.

Suppliers and distribution rights

A specialized business may hold exclusive distribution rights in a territory for certain brands. These rights are part of the value, but they are often personal or terminable in the event of a change of ownership. Verify every important agreement and, if necessary, obtain confirmation from the supplier before closing.

Step 7: Identify other retail-specific risks

Gift cards, deposits, and loyalty programs

Gift cards sold but not used, customer deposits on special orders, layaways, and loyalty points are liabilities to customers. If the buyer honors them after the closing, their value must be deducted from the price. Obtain an accurate statement of their balance as of the closing date.

The customer file and Law 25

The customer file, mailing list, and loyalty program data have value. Their communication to the buyer is governed by Quebec’s Act respecting the protection of personal information: it must be necessary for the transaction and preceded by a confidentiality agreement that limits the use of the information. After closing, the buyer who continues to use this information must notify the concerned individuals within a reasonable time. See Who owns a company's data, accounts, and creations?.

Signage and the Charter of the French Language

Since June 1, 2025, when a trademark in a language other than French appears on signage visible from the outside, French must be clearly predominant. Rules also apply to product labels, with a transition period until June 1, 2027, for certain products manufactured before the entry into force. Verify the compliance of the sign and display: compliance work is a cost to the buyer.

Leasehold improvements and equipment

Store furniture, displays, signs, the point-of-sale system, and refrigerated equipment generally have low resale value. Their condition is mainly important to determine whether the buyer will need to invest quickly. An obsolete point-of-sale system, a website that needs redoing, or tired fixtures are investments to plan for.

Key personnel

Who handles purchasing? Who knows the commercial clients? Who trains the employees? In a specialized business (bikes, musical instruments, outdoor equipment), the owner's expertise is often what customers come for. A transition period and a non-compete agreement are therefore essential. See Non-compete clauses: why they are crucial in business sales.

Step 8: Choose the multiple and reconcile

Observed ranges

TRNSFR observes, for retail in Quebec, multiples in the range of 1.5 to 3.5 times EBITDA. Online businesses may trade at higher multiples, depending on their growth and profitability. See Business sales multiples in Quebec: a guide by industry and size.

What makes the multiple go up or down

The floor: asset value

If the business is not profitable once the owner is paid at market rates, goodwill is worth almost nothing. The value is then limited to sellable inventory, the value of improvements and equipment, and sometimes the value of the lease itself if it is advantageous. In this case, also compare the option of liquidating the inventory. See Closing or selling your business: how to make the right decision.

Complete example: an affiliated hardware store in Magog

An independent hardware store affiliated with a banner has $4,200,000 in sales, with a 31% gross margin. Inventory at cost is $1,150,000. The owner works there full-time with their spouse. The building belongs to the owner's management company.

The seller asks for 3.5 times an EBITDA of $310,000, or $1,085,000, plus inventory at cost of $1,150,000: $2,235,000 in total.

Buyer normalization

The spouse works full-time and receives a market salary: no adjustment.

Inventory

Age-of-stock analysis shows about $180,000 in merchandise has not been sold for over 12 months (old tool lines, discontinued paint, seasonal items from past collections). Inventory turnover is about 2.5 times per year, or nearly 145 days of inventory.

The result

The parties agreed on $875,000 for goodwill, improvements, and equipment, plus sellable inventory at cost according to an independent count at closing. The slow-moving merchandise was taken over at 30% of its cost. The seller signed a 10-year lease (5 years plus a 5-year option) at market price with the buyer, which reassured the banner and the lender. Signage work required by the banner at the time of transfer, estimated at $40,000, was split equally.

Short example: a clothing boutique in Quebec City

A women's clothing boutique in the Saint-Roch neighborhood has $650,000 in sales. The owner works there full-time, with two part-time employees. The owner's discretionary earnings (EBITDA plus their own remuneration) are $110,000.

The buyer will work in the boutique herself. The parties therefore use discretionary earnings. At a multiple of 1.8, the value of goodwill and improvements is approximately $200,000, plus current season inventory, at cost, which is about $120,000. Inventory from previous seasons is excluded: the seller liquidates it herself before closing.

Two elements were decisive: a four-year remaining lease with a five-year renewal option, and the seller's commitment to stay for three months to introduce the buyer to loyal customers and supplier representatives.

What the seller can do to increase value

• Negotiate your lease before the sale: extensions, renewal options, clear assignment clause.

• Clean up inventory: liquidate old merchandise during the year preceding the sale, rather than seeing it excluded during the count.

• Count inventory physically at least once a year so that the gross margin is credible.

• Pay yourself a market salary and pay your family for work actually done: your financial statements will reflect true profitability.

• Delegate purchasing and employee management to a trusted person.

• Document your data: sales by category, margin by category, average basket, three-year history.

• Settle compliance: signage, Law 25, municipal permits.

• Speak early to your franchisor or banner to know their transfer conditions.

For complete preparation, see the sales preparation checklist and The ultimate guide to selling a business.

Checklist: evaluating a retail business

☐ Financial statements from the last 3 fiscal years and current year results obtained

☐ Measurement of earnings chosen: EBITDA or owner's discretionary earnings

☐ Owner's and family's salary adjusted to market price

☐ Rent adjusted to market price if the building belongs to the seller

☐ POS data analyzed over 24 to 36 months (trends, categories, average basket)

☐ Gross margin by category and unknown markdowns evaluated

☐ Age and turnover of inventory analyzed before offer

☐ Inventory counting terms planned in the letter of intent

☐ Lease analyzed: duration, renewal, assignment, sensitive clauses

☐ Landlord's consent obtained in writing

☐ Banner or franchisor transfer conditions obtained

☐ Distribution agreements and key suppliers verified

☐ Balances of gift cards, deposits, and loyalty points established

☐ Transfer of customer file handled in accordance with Law 25

☐ Compliance of signage with the Charter of the French Language verified

☐ Condition of improvements, POS system, and website evaluated

☐ Multiple justified by business factors, and asset value floor verified

The most frequent pitfalls

• Applying an EBITDA multiple to discretionary earnings. This is the fastest way to overpay for a small business.

• Forgetting unpaid family work. The displayed profit disappears as soon as you have to replace these people with employees.

• Paying for inventory at book value. Part of the inventory will never sell at its cost.

• Not capping inventory. A seller can fill their shelves right before closing.

• Discovering the lease at the end. A short or non-assignable lease can sink the transaction the week of closing.

• Forgetting gift cards. The buyer honors sales for which the seller has already collected the money.

• Underestimating franchisor requirements. Renovation work imposed at transfer can represent a significant portion of the price.

• Paying for undeclared sales. They are worth nothing to the buyer and can be costly.

For other common errors, see The 5 most frequent errors during a business transfer in Quebec.

Can you evaluate your retail business yourself?

For a preliminary estimate, yes. A business owner knows their sales, margins, and customers better than anyone. By normalizing profit, applying a range of multiples, and adding saleable inventory, they can obtain a useful order of magnitude. TRNSFR’s EBITDA calculator, AI business valuation tool, and business valuation checklist can help.

To set a selling price or make an offer, have the analysis validated by a CPA: normalization, structure (shares or assets), choice of GST/QST at closing, and the seller’s tax situation. Entrust the review of the lease, franchise agreement, and purchase agreement to a lawyer or notary. For a significant transaction, a family transfer, or a lender's requirement, a Chartered Business Valuator (CBV) will produce a formal report.

Sources

• TRNSFR, Business sales multiples in Quebec: industry and size guide

• Government of Quebec, General minimum wage rate to increase to $16.60 per hour on May 1, 2026

• Éducaloi, Language rights: new rules for businesses

• Office québécois de la langue française, Displaying trademarks and business names

• LégisQuébec, Act respecting the protection of personal information in the private sector, section 18.4

• LégisQuébec, Civil Code of Quebec, article 1871

• Revenu Québec, FP-2044 – Election concerning the acquisition of a business or part of a business

This article provides general information and does not replace a business valuation or tax, accounting, or legal analysis tailored to your specific situation.