The number on the offer and the funds in your account at closing are rarely the same. That gap is the difference between enterprise value and equity value, and most owners meet it for the first time on the day a deal closes.
Picture an offer that values your company at $10M. Once debt is repaid and the working capital account is settled, the equity value, the amount that reaches you as the shareholder, can land closer to $8M.
The business did nothing wrong. The two numbers simply answer different questions.
Founder Jonathan Soosaipillai, CPA, CGA, built JS CPA Strategic Solutions so Canadian owners see that full picture before they sign. As a Toronto CPA firm that structures cross-border deals, we model the after-tax, after-control result early.
We once advised a Canadian owner weighing an all-equity merger with strong paper projections. Our cross-border review found a biased valuation and a loss of control, so the owner chose to walk away with liquidity and options intact.
Here is how the two numbers work, how one becomes the other, and how to protect the amount you keep.
TL;DR — Enterprise Value vs Equity Value
- Enterprise value is the value of the whole business to every provider of capital, before cash and debt are counted.
- Equity value is the slice that belongs to shareholders, which is the figure you actually receive.
- The bridge is simple: equity value equals enterprise value minus net debt, with a working capital adjustment on top.
- Buyers usually quote enterprise value, because it compares businesses without their financing getting in the way.
- Each number pairs with its own multiples, so a mismatch produces a meaningless valuation.
- On a Canadian sale, deal structure and tax decide how much of your equity value you keep.
- Planning the structure early can shelter a large part of the gain through the lifetime capital gains exemption.
A strong offer can still leave funds on the table when the move from enterprise value to equity value is left to chance.
Our team has advised on more than $85M in enterprise value across founder-led transactions, and the pattern below holds across almost all of them.
Start With What Each Number Actually Means
Enterprise value and equity value measure different things, and seeing the difference clearly is the whole point.
Enterprise value is the total value of the business to everyone who funds it, both shareholders and lenders. Think of it as the price to own the entire operation free of its current financing. Equity value is narrower: the portion of that worth that belongs to the common shareholders once lenders are paid.
A house makes the idea concrete. A property worth $1M with an $800,000 mortgage has an enterprise value near $1M and an equity value near $200,000. The building is the business, the mortgage is the debt, and the owner keeps what is left after the lender.
What Enterprise Value Measures
Enterprise value looks at the operating business on its own, separate from how it happens to be financed.
Removing cash and debt from the comparison lets a buyer weigh two companies on equal footing even when one carries heavy borrowing and the other none. That is why acquirers and their advisors lead with it when they size up a target. The same logic drives how analysts value a private company when there is no public share price to read.
What Equity Value Measures
Equity value is the shareholder number, the worth of the business after its debts are accounted for.
For a public company, equity value is the market capitalization: the share price times the number of shares. For a private company, there is no share price, so equity value is worked out from enterprise value by adjusting for cash, debt, and other claims. That adjustment is where a seller’s real proceeds are won or lost.
Bridge From Enterprise Value to Equity Value
Moving from one number to the other follows a short formula, and each line in it changes what you take home.
The core relationship is this: equity value equals enterprise value plus cash minus total debt, adjusted for working capital and any other claims such as preferred shares. Most private sales are agreed on a cash-free, debt-free basis, which means the seller keeps the cash in the business and clears the debt at closing, and the headline enterprise value is adjusted to reach the equity value actually paid. Much of this is negotiated in the deal structure and terms, so the term sheet sets your final figure, often well below the headline.
Subtract Net Debt
Net debt is total debt minus the cash on hand, and it is the largest adjustment for most companies.
A buyer acquiring the business takes on its borrowings, so that amount comes off the enterprise value. Cash works the other way and is added back, since the buyer gains it on closing. Debt-like items can surprise sellers here: unpaid taxes, deferred compensation, and some lease obligations are often treated as debt and reduce equity value.
Settle the Working Capital Peg
Buyers expect a normal level of working capital to come with the business, enough to keep it running the day after closing.
The parties agree a target, often called the peg, based on the company’s recent history. Deliver less working capital than the target and the shortfall is deducted from your proceeds; deliver more and you may receive a credit. Sellers who ignore this line can watch hundreds of thousands of dollars move at the last minute.
Account for Preferred Shares and Other Claims
Any capital that ranks ahead of the common shares is settled before you reach your number.
Preferred shares, shareholder loans, and earnout obligations each have a claim on the proceeds. Subtracting them gives the equity value that flows to the common shareholders. A simple worked example shows how the lines stack up.
| Line | Amount (CAD) |
|---|---|
| Enterprise value (the offer) | $10,000,000 |
| Add cash on the balance sheet | +$500,000 |
| Subtract total debt | ($2,000,000) |
| Working capital adjustment | ($300,000) |
| Subtract preferred shares | ($200,000) |
| Equity value to shareholders | $8,000,000 |
Every business is different, so treat this example as illustrative; your own figures have to be reviewed before anyone quotes a number.
Match the Right Valuation Multiple to Each Number
A valuation multiple is only correct when it pairs with the matching number, and mixing them produces nonsense.
Enterprise value pairs with measures available to all providers of capital, such as EBITDA (earnings before interest, taxes, depreciation, and amortization), because those figures sit before interest on the income statement. Equity value pairs with after-interest measures such as net income, which belongs to shareholders alone. A multiple is also a quick way to gauge what your business could sell for before a formal review.
| Multiple | Pairs With | Why It Fits |
|---|---|---|
| EV / EBITDA | Enterprise value | EBITDA is earned before interest, so it belongs to all investors |
| EV / Revenue | Enterprise value | Revenue is a whole-business figure |
| Price / Earnings | Equity value | Net income is after interest, so it belongs to shareholders |
| Price / Book | Equity value | Book value is shareholders’ equity |
The rule is to keep the numerator and denominator in the same world: a whole-business value with a pre-interest measure, a shareholder value with a post-interest measure. An independent valuation from a Chartered Business Valuator applies these methods consistently and gives you a figure you can defend when a buyer’s advisors test it.
Turn Equity Value Into What You Actually Keep
Equity value is still a pre-tax number, and for a Canadian seller the structure of the deal decides how much of it survives.
Most Canadian private-company sales close as either an asset sale or a share sale, and the choice carries real tax weight. In an asset sale, the corporation sells its assets and the lifetime capital gains exemption is generally not available to the seller.
In a share sale, you sell the shares, the proceeds usually receive capital gains treatment, and you may qualify for a tax reduction through the exemption if your shares meet the rules. For the full picture, see our guide to the tax implications of a sale.
Choose the Deal Structure That Protects Your Proceeds
Buyers often prefer an asset sale, while sellers usually prefer a share sale for the tax treatment.
Where the two sides land is a negotiation, and it belongs in your planning long before an offer arrives. The majority of the assets and the business generally have to be active and in Canada for the shares to qualify as a qualified small business corporation (QSBC), the status that opens the exemption. Planning the share structure early, sometimes across family members who each hold qualifying shares, can widen the benefit.
We once worked with a Canadian firm whose shares were set up as a single common class until our team restructured them and corrected the books. After that work, the owner could access about $3M in tax-free funds through the exemption on exit.
Plan for Capital Gains Tax on the Sale
Only part of a capital gain is taxable, and the current rules favour sellers who plan ahead.
As of 2026 the capital gains inclusion rate is one-half, so 50% of a gain is included in income, as the Canada Revenue Agency (CRA) sets out in its guide to capital gains. The federal proposal to raise that rate to two-thirds was deferred and then cancelled by the government, so the one-half rate continues to apply. A rule that has changed this often is worth confirming with a qualified advisor before you close.
On a qualifying share sale, the lifetime capital gains exemption is the largest single tax lever most owners have. Under proposed changes, for 2025 the exemption is $1,250,000 for dispositions of qualifying property, a figure the CRA publishes and indexes through the capital gains deduction. These figures are illustrative and depend on your eligibility, so confirm the current-year limit before you plan around it.
Avoid the Mistakes That Shrink Equity Value
A few predictable errors turn a strong enterprise value into a disappointing payout.
- ●Treating the headline as the payout: the enterprise value in an offer is the whole-business figure, and your proceeds come only after debt and adjustments.
- ●Ignoring debt-like items: unpaid taxes, deferred payments, and certain lease obligations can be counted as debt and lower your equity value.
- ●Underestimating the working capital peg: a shortfall against the agreed target is deducted at closing, often late in the process.
- ●Misreading cash-free, debt-free: that common basis means the seller keeps the cash and clears the debt, which moves the final number.
- ●Leaving tax to the end: the same structure that produces your equity value also drives the tax, so plan both together.
Enterprise value sells the business; equity value, after debt, adjustments, and tax, is what reaches you. Treat the two as one decision and the headline rarely surprises you at closing.
A disciplined process catches these early. Our team works alongside your lawyer and banker so the valuation, deal terms, and tax plan pull in one direction.
Frequently Asked Questions (FAQs)
Below are answers to the questions owners ask us most often about the two numbers in a deal.
Sell From a Position of Clarity
The owners who do best treat the two numbers as one decision rather than a surprise at closing.
They learn their enterprise value, understand how it becomes equity value, and plan the deal structure and tax before an offer lands. The owners who struggle react to the headline figure, then discover the shortfall when the funds arrive. You built the business with care, and the exit deserves the same.
Remember: the price a buyer names and the funds a seller keeps are two different numbers, and the distance between them is where good advice earns its place.