Business valuation multiples: what Australian businesses sell for
The EBITDA multiple ranges published for Australian businesses by size and sector, and what decides whether you land at the top or bottom of the band.
If your business earns $1 million a year, it is probably worth somewhere between $3 million and $6 million.
That range is the honest answer, and it is also useless on its own. Three million dollars is the difference between the top and the bottom of it, and no published table will tell you which end you are at.
This covers the multiples that get quoted, where they come from, and the factor that decides where in the range a business lands.
What is an EBITDA multiple?
A number applied to your earnings to estimate what the business is worth. Earnings times multiple equals value.
EBITDA means earnings before interest, tax, depreciation and amortisation, which is a way of showing what the operations produce before financing and accounting choices are layered on. Buyers use it because it lets them compare businesses with different debt levels and different asset bases.
The multiple itself is the buyer's judgement about risk. A higher multiple means they believe the earnings will continue. A lower one means they are less sure.
What is a good EBITDA multiple?
Published ranges cluster by size, and the pattern is consistent across sources.
One widely cited set of benchmarks gives roughly 2 to 4 times for businesses under $500,000 EBITDA, 3 to 5 times from $500,000 to $1 million, 4 to 6 times from $1 million to $5 million, and 5 to 8 times or higher above $5 million (Merge).
Another analysis puts businesses in the $5 million to $50 million revenue range between 3 and 8 times, with room above that in the right circumstances (South Coast Financial Partners).
Sector matters too. An Australian corporate advisory firm notes the financial sector trades at 7 to 12 times, with outliers as low as 3 to 4 or as high as 14 to 20 (Nash Advisory).
Two things to take from that. Bigger businesses get bigger multiples. And every band is wide enough that knowing your band tells you remarkably little.
Why do bigger businesses get higher multiples?
The usual explanation is worth reading closely, because it contains the answer to the whole question.
Google's own summary of the topic explains that larger businesses tend to command higher multiples because they are seen to have stronger infrastructure, a deeper management team, less key person risk, and a larger pool of potential buyers.
Three of those four have nothing to do with size. A $6 million business can have a deep management team, documented infrastructure and low key person risk. A $20 million business can have none of them, if the owner never let go.
Size correlates with those things. It does not cause them. Which means a smaller business that has done the work can reach into the band above it, and a larger one that has not can sit at the bottom of its own.
What decides where in the range you land?
Risk to future earnings, and in an owner-led business the largest single risk is usually the owner.
A buyer paying five times earnings is paying for five years of profit they have not yet seen. Everything that makes those earnings more likely to continue pushes the multiple up.
Whether the business runs without you. The largest factor in most owner-led sales, and the one that takes longest to change.
Customer concentration. Revenue spread across many customers is worth more than the same revenue from three.
Recurring or contracted revenue. Predictable earnings attract higher multiples than earnings that must be won again each year.
Documented systems. One Australian valuation tool lists documented systems and consistent growth among the factors that lift a multiple (Value My Business).
Clean financials. Not because tidy books are worth money, but because messy ones make a buyer doubt everything else.
How much difference does this make?
Take the $1 million EBITDA business at the 4 to 6 times band.
At the bottom of the range, that is $4 million. At the top, $6 million. Same earnings, same industry, same year. The gap is two million dollars, and it is decided by things that are not on the profit and loss.
That gap is why the preparation matters more than the negotiation. You cannot argue your way from the bottom of a band to the top during a sale process, because the buyer is pricing what they can see and verify. You can build your way there over two or three years. our guide to preparing a business for sale sets out the sequence.
How do you find your own multiple?
Three steps, and none of them is a calculator.
Establish the band from published sources for your size and sector. That gets you the bracket.
Find recent comparable sales, ideally through a broker or adviser who has transacted in your sector. Published ranges are national and generic. Actual transactions in your market are worth more.
Assess honestly where in the band you sit. How long the business could run without you, how concentrated the customers are, how much revenue recurs, and whether a stranger could follow how the work gets done. our guide to key person risk covers what buyers examine.
Then get a formal valuation before you act on any of it. A published range is a starting point for a conversation, not a number to plan around.
Frequently asked questions
What is a good EBITDA multiple?
It depends on size and sector. Published benchmarks give roughly 2 to 4 times under $500,000 EBITDA, 3 to 5 times from $500,000 to $1 million, 4 to 6 times from $1 million to $5 million, and 5 to 8 times or higher above that (Merge). Where you sit within the band matters more than the band itself.
How do I calculate an EBITDA multiple?
Divide the value of the business by its EBITDA, or in reverse, multiply EBITDA by the multiple to estimate value. For a sale, buyers apply the multiple to adjusted or normalised EBITDA rather than the raw figure.
What is a 5x EBITDA valuation?
Adjusted EBITDA multiplied by five. On $2 million of adjusted EBITDA that gives $10 million. The same calculation on the same earnings at 3 times gives $6 million, which is why the multiple matters more than the arithmetic.
Is 3x EBITDA good?
For a small owner-dependent business it is typical. For a larger business with a management team and recurring revenue it would usually be low. Context decides it.
How many times profit is a business worth?
Most Australian small and medium businesses transact somewhere between 2 and 8 times earnings, depending on size, sector and how transferable the business is. Financial services and some specialist sectors run higher (Nash Advisory).
Why do two businesses with the same profit sell for different amounts?
Because the multiple prices risk rather than profit. The business whose earnings continue without its owner carries less risk, so it earns a higher multiple on identical earnings.
Clarity Systems works with owner-led businesses to remove owner dependency. We call the result operational independence, and it's how you get the full value of your life's work.
General information only. This article is general information about business operations and does not take account of your objectives, financial situation or needs. It is not financial, legal, taxation or accounting advice, and no advisory relationship is created by reading it. Clarity Systems is not a licensed financial adviser, registered tax agent or law firm. Any valuation figures, multiples or ranges mentioned are general illustrations only. They are not a valuation of any business, not an estimate of what your business would sell for, and not a representation about any outcome you might achieve. Business valuation depends on many factors specific to the business and the market at the time. Obtain a formal valuation from a qualified valuer. Before acting on anything in this article, obtain advice from a qualified professional who knows your circumstances. Information was accurate at the date of publication and may have changed since. To the extent permitted by law, Clarity Systems accepts no liability for any loss arising from reliance on this article. Third-party sources are cited for reference and their inclusion is not an endorsement.