Multiples

A valuation multiple is shorthand for what a business is worth: a number of times its annual earnings. What that number should be depends heavily on industry, size and risk.

In shortA valuation multiple is shorthand for what a business is worth: a number of times its annual earnings. What that number should be depends heavily on industry, size and risk.

SDE vs. EBITDA multiples

Smaller, owner-operated businesses are usually valued on a multiple of Seller’s Discretionary Earnings (SDE) — profit plus the owner’s salary and discretionary expenses. Larger businesses, where ownership is separate from management, are valued on a multiple of EBITDA. A main-street business might trade at 2–3× SDE; a larger, systematized business commands a higher EBITDA multiple.

Why verified comps matter

Most published multiples are drawn from asking prices or self-reported figures — which run high. ExitToBuy grounds its multiples in verified transactions, and states its sourcing. A smaller sample of checked deals is more useful for pricing a real transaction than a large sample of unverified asks.

Reading a multiple honestlyA multiple is a starting point, not an appraisal. Two businesses in the same industry can trade a full turn apart on the strength of customer concentration, owner dependence, growth, and the quality of the books.

Frequently Asked Questions

What is a good SDE multiple for a small business?

Many main-street businesses trade in the range of roughly 2–3× SDE, but the right multiple depends on the industry, growth, owner dependence and how clean the financials are. Verified financials tend to support the higher end of a range.

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