At almost every barbecue, somebody knows somebody who sold their business for a certain number of times earnings. Owners hear that and apply it to their own business. Then they’re shocked when buyers see it differently.
I won’t publish multiples on this site — they vary too much, they change with markets, and a number out of context does more harm than good. Instead, here’s how multiples actually work, so you can understand any number someone gives you.
What a multiple is
A multiple is just a ratio: price divided by a measure of the business’s results.
The measure might be:
- Seller’s discretionary earnings (SDE) — common for smaller, owner-operated businesses. See seller’s discretionary earnings.
- Adjusted EBITDA — common for larger businesses with management teams. See EBITDA for small business.
- Revenue — sometimes used in certain industries or high-growth businesses, but often misleading for small businesses because it ignores profitability.
A multiple is a compressed way of saying: “Given how risky and how fast-growing this cash flow is, here’s how many years of it a buyer is willing to pay for up front.”
Why multiples vary so much
Two businesses with the same earnings can sell at very different multiples. The main reasons:
| Factor | Pushes the multiple up | Pushes it down |
|---|---|---|
| Size | Larger, more stable earnings | Small earnings that one bad year could wipe out |
| Owner dependence | Team runs the business | The owner is the business |
| Customers | Many customers, recurring revenue | One or two big customers, one-time sales |
| Growth | Clear, credible growth | Flat or declining |
| Financial quality | Clean books that tie to returns | Messy books, undocumented add-backs |
| Industry | Stable or growing demand | Declining or disrupted |
| Team | Strong managers who stay | Key people likely to leave |
| Systems | Documented processes | Everything in people’s heads |
| Transferability | Contracts, licenses, leases transfer | Key items tied to the owner |
Every row is a statement about risk. Lower risk means a buyer will pay more for each unit of earnings.
Why rules of thumb mislead
Industry rules of thumb — “businesses like yours sell for X times earnings” — can be a rough starting point, but they hide enormous variation. They don’t know:
- How dependent your business is on you.
- Whether your earnings are documented.
- Whether your biggest customer is about to leave.
- Whether your lease is expiring.
- Whether your team will stay.
They also blur the difference between measures. A multiple of SDE and a multiple of EBITDA are not the same thing, because SDE includes the owner’s compensation and EBITDA usually assumes a paid manager. Mixing them up is one of the most common mistakes owners make when comparing their business with someone else’s sale.
The price isn’t only the multiple
Two deals at the same headline value can be very different:
- How much is paid at closing vs over time?
- Is part of the price an earnout tied to future results? See earnout business sale.
- Is there a seller note? See seller financing a business.
- Is working capital included? See working capital adjustment.
- What obligations stay with you after closing?
Always compare offers on the full terms, not the multiple alone.
How to improve your multiple
Reduce risk and make the future more believable:
- Get out of daily operations. The single most powerful lever.
- Clean up and document your financials.
- Diversify customers and build recurring revenue.
- Build and keep a strong team.
- Document your processes.
- Secure leases, contracts and licenses that transfer.
- Show a credible growth plan.
See what increases business value and prepare a business for sale.
Getting a realistic view
Ask a qualified appraiser, an experienced broker or knowledgeable buyers how they’d see your business — and ask them to explain the risks they’re weighing. That explanation is more valuable than the number itself, because it tells you what to fix. See business valuation methods.
A buyer’s perspective
When I look at a business, I’m not reaching for a multiple first. I’m asking: How reliable is this cash flow? What happens when the owner leaves? Which customers stay? What can better systems and modern tools improve? The answers shape what I’d be willing to offer — and how I’d structure it.
Next steps
Read how to value a small business for the full picture. If you’d like a buyer’s honest read on the risks in your business, start a confidential conversation.
Multiples are useful shorthand between people who already understand the business. For an owner, the real work is in the risks behind them.
Questions people ask
What is a valuation multiple?
A valuation multiple expresses a business’s price as a multiple of a financial measure, such as seller’s discretionary earnings, EBITDA or revenue. It’s a shorthand that bundles together a buyer’s view of risk and growth.
Why do multiples vary so much between businesses?
Because multiples reflect risk and expected growth. Size, owner dependence, customer concentration, recurring revenue, industry trends, the quality of the team and the reliability of the financials all push multiples up or down.