What are business valuation multiples?
Business valuation multiples are ratios that compare a business's sale price or enterprise value to a financial metric like EBITDA, revenue, or net profit. For example, a business sold for $3M with $1M EBITDA traded at a 3x EBITDA multiple. Multiples from comparable transactions provide market-based evidence of what buyers actually pay for similar businesses.
Understanding Valuation Multiples
Valuation multiples are the most intuitive and widely used method for estimating business value. They work by comparing your business to similar businesses that have recently sold, applying the observed price-to-earnings ratios to your financial metrics.
While seemingly simple, selecting and applying multiples correctly requires expertise. The wrong comparable set, inappropriate adjustments, or misapplied multiples can produce wildly inaccurate valuations.
Types of Valuation Multiples
Different multiples suit different business types and situations.
EBITDA Multiples
EBITDA (earnings before interest, tax, depreciation, and amortisation) multiples are the most common for established businesses. They range from 2-3x for small, owner-dependent businesses to 6-10x+ for larger, well-managed companies with strong growth. EBITDA multiples normalise for capital structure and tax differences.
Revenue Multiples
Revenue multiples are used for high-growth, pre-profit, or SaaS businesses where earnings don't reflect future potential. Recurring revenue businesses command higher multiples (2-8x ARR) compared to project-based revenue (0.3-1.5x). Revenue quality and growth rate significantly affect the multiple.
Earnings Multiples (P/E)
Price-to-earnings multiples relate sale price to net profit after tax. Common for professional practices and businesses where earnings closely reflect cash flow. Typical ranges are 2-5x for small businesses, increasing with scale, stability, and growth.
Asset Multiples
For asset-heavy businesses (property, equipment, inventory), price-to-net-asset multiples indicate whether the market values the business above or below its tangible asset base. Multiples above 1x indicate goodwill value.
What Drives Multiples Higher or Lower
Understanding what influences multiples helps you maximise your business value. Key positive drivers include consistent revenue growth, recurring or contracted revenue, diversified customer base, strong management team (not owner-dependent), scalable business model, and defensible competitive position.
Factors that reduce multiples include owner dependence, customer concentration, declining markets, regulatory risk, inconsistent earnings, and capital-intensive operations. Addressing these weaknesses before sale can significantly increase the multiple a buyer will pay.
Brisbane Market Multiples
Brisbane business multiples reflect local market conditions, industry composition, and buyer activity. Generally, Brisbane multiples are slightly lower than Sydney and Melbourne due to smaller buyer pools, but the gap has narrowed as interstate and international buyers increasingly target Queensland opportunities.
Current Brisbane market multiples vary significantly by industry. Professional services typically trade at 2-4x EBITDA, healthcare at 4-7x, technology at 5-10x, and manufacturing at 3-5x. These are indicative ranges — actual multiples depend on specific business characteristics.
Key Benefits
How It Works
1Financial Normalisation
Adjusting your financials to determine normalised EBITDA or earnings — the base to which multiples are applied. This includes removing owner benefits, one-off items, and non-operating income.
2Comparable Selection
Identifying genuinely comparable businesses from transaction databases, adjusting for size, industry, geography, growth rate, and transaction timing to build a relevant comparable set.
3Multiple Application
Selecting appropriate multiples from the comparable set, adjusting for your business's specific strengths and weaknesses relative to comparables, and applying to normalised earnings.
4Cross-Check & Conclude
Cross-checking the multiple-based valuation against other methods (DCF, asset-based) to confirm reasonableness and provide a defensible valuation range.
Common Questions About Business Valuation
People Also Ask
No. Sydney and Melbourne typically command 10-20% higher multiples due to larger buyer pools and more competitive markets. Brisbane and regional markets have slightly lower multiples but the gap has narrowed. Industry matters more than geography for most businesses.
Yes. Focus on reducing owner dependence, diversifying customers, building recurring revenue, strengthening management, documenting systems, and demonstrating consistent growth. These improvements can add 1-2x to your multiple over 2-3 years.
Accountants commonly use capitalisation of future maintainable earnings (CFME), which is essentially an earnings multiple approach. The multiple (capitalisation rate) depends on risk — lower risk businesses get higher multiples. Most accountants use 2-5x normalised earnings for small businesses.
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