Every business owner eventually asks the big question: “What is my business actually worth?” Too often, the answer comes from gut feeling, emotional attachment, or what a friend sold their very different business for. This kind of guesswork can be costly, leading to unrealistic expectations or leaving serious money on the table when it matters most. 

In the world of business sales and acquisitions, professional buyers, investors, and advisors rely on a different language: valuation multiples. Understanding this shorthand is the first step to accurately gauging your company’s market value and preparing for a successful deal.

What Are Valuation Multiples?

At their core, valuation multiples are simple financial ratios. They compare a company’s total value to a specific financial metric like its earnings or revenue. For instance, if a business is valued at £10 million and generates £2 million in annual profit, it has a profit multiple of 5x. This simple tool becomes incredibly powerful in the world of mergers and acquisitions (M&A). It provides a standardised benchmark, allowing for a quick comparison between similar companies in the same sector.

In any negotiation, the buyer and seller naturally have opposing views. A seller might highlight every ounce of potential, arguing for a higher multiple based on future growth. A buyer, conversely, will focus on risks and historical performance, pushing for a lower, more conservative multiple.

This is where multiples become central to the conversation. They ground the discussion in market reality, moving it away from pure opinion and towards a data-informed starting point. For small and medium-sized enterprises (SMEs), this credibility is crucial.

Presenting a valuation backed by industry-standard multiples shows sophistication and preparation, which is highly attractive to serious investors and acquirers. In a market where APAC mid-market M&A volumes are showing steady growth, entering a negotiation without a firm grasp of your relevant multiples is like sailing without a compass.

EBITDA Multiples: The Core of SME Valuations

When you hear M&A advisors discussing value, one term comes up more than any other: EBITDA. It stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. The reason it’s considered the gold standard is that it strips out non-operating expenses and accounting variables (like depreciation schedules) to give a clear picture of a company’s core operational profitability. It essentially answers the question, “How much cash is this business generating from its day-to-day operations?”

For most established SMEs, the valuation is calculated as a multiple of this EBITDA figure. While these multiples fluctuate, a common range for service-based businesses in 2025 might be 3x to 6x.

In contrast, high-growth sectors with strong intellectual property, such as technology or SaaS, can command significantly higher multiples. The key to an accurate calculation lies in “normalising” the EBITDA. This involves making adjustments for one-off expenses (like a major lawsuit) or personal costs the owner runs through the business (such as above-market-rate salaries or family car expenses). A buyer is interested in the profit a new owner could realistically expect, not the profit tied to the current owner’s specific circumstances.

Consider a practical example. An Australian professional services firm generates $2 million in reported EBITDA. However, after an advisor performs normalising adjustments, adding back the owner’s excess salary of $150,000 and a one-time legal fee of $50,000, leaving the adjusted EBITDA becomes $2.2 million. Applying a competitive 5x multiple, the business valuation moves from $10 million to $11 million. This $1 million difference highlights why a detailed understanding of EBITDA is not just academic; it has a direct and substantial impact on the final sale price, especially within key Australian M&A sectors like professional services, technology, and healthcare.

Revenue Multiples: When EBITDA Isn’t Enough

While EBITDA is the go-to metric for many businesses, it doesn’t always tell the whole story. What about a rapidly growing technology startup that is reinvesting every dollar of profit back into acquiring new customers? Or a SaaS company with phenomenal recurring revenue but thin profit margins by design? In these scenarios, a multiple of EBITDA could wrongly suggest the business has little value. This is where revenue multiples come into play for business sales and acquisitions.

A revenue multiple, often expressed as a multiple of Annual Recurring Revenue (ARR) for subscription businesses, values a company based on its top-line sales. This approach is most appropriate for high-growth companies where market share and scale are currently more important than immediate profitability. For example, a SaaS company with $3 million in ARR might be burning cash and have a negative EBITDA. Yet, a buyer might value it at 5x ARR, or $15 million, betting on its sticky customer base and future profit potential.

The main advantage of a revenue multiple is its simplicity and focus on growth. However, its significant disadvantage is that it completely ignores profitability and operational efficiency. Two companies could have the same revenue, but one might be a lean, well-oiled machine while the other is a bloated, inefficient operation. A revenue multiple treats them equally.

Because of this, buyers apply them cautiously and almost exclusively in sectors where a clear path to future profitability can be demonstrated, a trend particularly prevalent in the fast-paced IT sector that continues to dominate M&A activity.

Sector Benchmarks

One of the most critical lessons for any SME owner is that valuation multiples are not universal. The 4x multiple that applies to a traditional manufacturing business is entirely different from the 10x multiple a cutting-edge software company might attract.

Every industry has its own risk profile, growth trajectory, and competitive landscape, all of which are reflected in its typical valuation benchmarks. A buyer assessing a construction company will be concerned with project pipelines and economic cycles, while a buyer for a healthcare clinic will focus on patient loyalty and regulatory compliance.

These sector-specific dynamics create distinct multiple ranges. For instance, businesses with high levels of recurring revenue, strong intellectual property, and low customer concentration tend to command premium valuations. Conversely, businesses that are heavily reliant on the owner, face intense competition, or operate in low-growth industries will fall at the lower end of the scale. Understanding where your business fits is fundamental to setting realistic expectations.

The table above offers a simplified view, but it illustrates the stark differences. An M&A advisor’s role is not just to find a multiple but to build a compelling case for why a specific business deserves to be at the top of its industry’s range.

How M&A Consultants Use Multiples in Practice

An experienced M&A consultant provides immense value in business sales and acquisitions, beyond merely entering figures into a formula. Their expertise shines in data interpretation and orchestrating a narrative to achieve the highest possible valuation multiple. This journey starts with detailed preparation, including the normalising adjustments to EBITDA we’ve covered. They conduct comprehensive research to identify “comparables”, such as recent sales of similar businesses, to establish a credible foundation for negotiation.

The true skill lies in strategic storytelling. A consultant might represent a logistics company not merely as a trucking business, branded at 4x EBITDA, but as a “tech-enabled logistics provider” equipped with proprietary routing software, meriting a 6x multiple. They will showcase intangible assets like a powerful brand, a skilled management team able to function independently of the owner, or a distinct competitive edge safeguarding future cash flows. This carefully crafted positioning is aimed at mitigating the buyer’s default inclination to stress risk and suggest a lower multiple.

During a buyer’s due diligence process, the goal is to identify weaknesses to negotiate price reductions. A consultant prepares for this scrutiny by optimising the business well in advance. They ensure that financial records are accurate, contracts are secure, and risks are minimised. By presenting a well-prepared business and a convincing growth story, they pivot the negotiation from defending the price to showcasing value, greatly impacting the final multiple outcome in business sales and acquisitions.

Maximise Multiples for Business Sales and Acquisitions

The valuation multiple your business achieves is something you can actively influence within the domain of business sales and acquisitions. The work done in the 12 to 24 months before a sale can have a monumental impact on the final offer. Buyers pay a premium for quality and a discount for risk. Your goal is to increase the former and minimise the latter.

Several key drivers directly influence valuation multiples in the context of business sales and acquisitions. Clean, audited financial accounts demonstrate transparency and build trust. A strong management team that can run the business without the owner’s daily involvement proves the company is a sustainable entity, not just a job for the founder.

Reducing customer concentration is also vital, as if your top client represents 40% of your revenue, that poses a significant risk for a buyer. Securing long-term contracts with key customers can provide certainty and justify a higher multiple.

Imagine an SME with a high reliance on its owner and messy financials, initially valued at a 3.5x multiple. Over two years, the owner works with an advisor to implement new systems, build a management team, diversify their client base, and complete a financial audit. When they go to market, the business is now seen as a much lower-risk investment with a clear growth path. A buyer, confident in the company’s stability and potential, acquires it for a 5x multiple. This strategic preparation directly translated into millions of dollars in additional value.

Unlocking Value in Business Sales and Acquisitions

Valuation multiples are the currency of business sales and acquisitions, shaping how buyers, investors, and advisors view your company’s worth. From EBITDA adjustments to sector benchmarks, the multiple you achieve depends not only on the numbers but also on preparation and positioning.

At Oasis Partners, we specialise in helping business owners prepare, position, and negotiate with confidence. If you’re considering a sale or acquisition, speak to our team and discover how the right strategy can maximise the value of your business.