Most private businesses are valued on a simple idea: a multiple of their earnings. But the multiple you get depends on how risky and transferable your business looks to a buyer. Here's how valuation actually works, and what moves the number.
The most common approach values a business as normalised earnings (usually EBITDA, or seller's discretionary earnings for smaller businesses) multiplied by an industry multiple.
Normalised means adjusted: you add back owner's excess salary, one-off costs and personal expenses to show the true, ongoing profitability a buyer would inherit.
Small owner-run service businesses often trade around 2–4× earnings. Established, systemised businesses reach higher. SaaS and healthcare can command 4–8× or more because of recurring revenue and defensibility.
These are starting points, not promises. Growth rate, margins, customer concentration and owner-dependence move you within — and sometimes beyond — the range.
Up: predictable recurring revenue, strong margins, a diversified customer base, and a business that runs without the owner.
Down: lumpy or declining earnings, one big customer, messy books, and a business that depends entirely on you. Each of these is a risk a buyer prices in.
The first credible number anchors the entire negotiation. Going to market with a defensible, well-documented valuation protects you from leaving money on the table — and shows you exactly which gaps to close first.
Multiply the business's normalised annual earnings (EBITDA or SDE) by a typical multiple for its industry and size. This gives an indicative range; a defensible valuation adjusts for growth, risk and owner-dependence.
It depends on your industry and size — often 2–4× for small service businesses and 4–8× for SaaS or healthcare. Growth, margins and customer concentration move the number within that range.
Our Business Valuation service turns this into a defensible result.