How to value a business in Australia: the methods, the multiples, and the number buyers pay

Ask how to value a business and you will get four methods. Earnings multiple, asset value, discounted cash flow, and a multiple of revenue. Every guide covers them, and they are all correct.

What almost none of them tell you is that the method is the easy part. Three valuers using the same method on the same business can land on very different numbers, because the method sets the shape of the calculation and something else sets the multiple.

That something else is risk, and in an owner-led business the largest single risk a buyer prices is how much of the business is you.

How do you calculate the value of a business?

Start with the method that fits what you own.

Earnings multiple. Take a normalised profit figure, usually EBITDA, and multiply it by a number reflecting the risk and quality of those earnings. This is the method most Australian small and medium business sales run on.

Return on investment. business.gov.au sets out the formula: ROI equals net annual profit divided by selling price, times 100, so selling price equals net annual profit divided by ROI, times 100 (business.gov.au). It is the same idea from the buyer's side, expressed as the return they need.

Asset valuation. Total assets less total liabilities. CommBank describes this as what the business would be worth if it closed down and was sold today (CommBank). Useful as a floor, and it ignores goodwill entirely.

Discounted cash flow. Project future cash flows and discount them to present value. Rigorous, and heavily dependent on the assumptions behind the forecast.

Most sales in the $2 million to $15 million range come back to an earnings multiple, with asset value as a sanity check.

What is the rule of thumb for business valuation?

Rules of thumb exist for most sectors and they are worth knowing and not trusting.

They apply a standard industry multiple to a single figure, usually EBITDA, seller's discretionary earnings or revenue, without doing the underlying work. They will get you inside the right postcode. They will not tell you where in the range you sit, and the range is wide.

Published figures give a sense of the spread. One 2025 to 2026 analysis puts small businesses with $500,000 to $2 million EBITDA at roughly 3 to 6 times, and mid-market businesses with $2 million to $10 million EBITDA at roughly 5 to 10 times (Valutico). Xero gives a broader band of two to seven times depending on industry, growth potential and risk (Xero).

Note what those ranges mean in practice. A business earning $1 million EBITDA sits somewhere between $3 million and $6 million on the first set of figures. Same profit. Same sector. The gap is the whole question, and no method resolves it. our upcoming guide to valuation multiples breaks the ranges down by business type.

What moves the multiple?

This is where the ranking pages stop and the actual answer starts.

A buyer paying a multiple of earnings is buying future earnings they have not yet seen. The multiple is their judgement about how likely those earnings are to continue after you leave. Everything that makes continuation more certain pushes it up.

Google's own summary of business valuation lists the drivers, and the first one is owner independence: businesses that run smoothly without daily input from the owner command higher values. Customer diversity comes next, then documented systems and clean records.

That ordering is correct and almost nobody builds a valuation conversation around it. The methods get the pages. The driver that moves the number gets a bullet point.

Why do two businesses with the same earnings sell for different amounts?

Take two engineering firms, same state, both turning over around $6 million, both with normalised EBITDA of about $900,000.

In the first, the owner quotes the large jobs, holds the relationships with the top four clients, and approves anything unusual. Nothing is written down because it never needed to be. The business runs well, and it runs through him.

In the second, an estimator prices jobs to a documented threshold, account managers hold the client relationships, and the owner has been out of daily operations for eighteen months. The financials show it kept performing while he was out.

Same earnings. A buyer looks at the first and sees earnings that depend on a person who is leaving. They look at the second and see earnings that belong to a business. The first gets a lower multiple, a longer handover and more of the price tied to an earn-out. The second gets a cleaner deal.

Nothing in the valuation method produced that difference. The difference was built over the previous two years.

How do you value a small business in Australia?

Practically, four steps.

Normalise the earnings. Strip out owner benefits, one-off costs and anything that would not continue under new ownership, so the profit figure reflects the business rather than your arrangements.

Pick the method that suits what you own. Earnings multiple for most trading businesses, asset value where the assets are the business.

Establish the industry range from published sources and recent comparable sales rather than from what you hope.

Then work out honestly where in that range you sit, and the questions that decide it are not financial. How long could this run without you. Who else can approve money. Do the customers belong to the business or to a person. our guide to key person risk covers what buyers examine and why.

For anything approaching a real transaction, get a formal valuation from a qualified valuer. This is a guide to understanding the number, not a substitute for one.

Frequently asked questions