When you hear that a business sold for ‘four times earnings’, that’s a reference to an EBITDA multiple. Most Australian SMEs are bought and sold using this method — and if you are thinking about buying or selling, understanding how it works is essential.
This article explains what the multiple is, what ranges Australian businesses typically trade at, and — more importantly — what drives the multiple up or down. For the full picture of how businesses are valued, see our guide on how to value a business in Australia.
What Is EBITDA?
EBITDA stands for Earnings Before Interest, Tax, Depreciation and Amortisation. It’s a measure of the operating profit a business generates before financing costs, tax, and non-cash accounting adjustments.
It’s used as the basis for business valuation because it gives a cleaner view of the cash-generating capacity of the underlying business — stripping out things that vary by ownership structure (like how much debt the business carries) and accounting treatment (like depreciation rates).
In practice, you do not read EBITDA directly from the P&L. You need to normalise it first — adjusting it to remove owner-specific items, personal expenses, one-off events, and related-party transactions that will not continue under new ownership. Normalised EBITDA is the figure that drives the valuation.
How the Multiple Works
The formula is simple:
Business Value = Normalised EBITDA × Multiple
A business with $500,000 of normalised EBITDA sold at a 3.5x multiple is worth $1.75 million. The same business at a 4.5x multiple is worth $2.25 million. The EBITDA stays the same — the multiple is where the difference between winning and losing $500,000 of value sits.
That’s why understanding what drives the multiple matters as much as understanding what drives the earnings.
What Multiples Do Australian SMEs Typically Sell At?
The honest answer is: it varies, and no comprehensive public database covers Australian SME transactions specifically. There’s no single authoritative public database for small business deal multiples in Australia the way there is in the US. What follows are indicative ranges based on market observation and broker transaction data — useful for orientation, not precision:
General range for trading SMEs
- Micro businesses (under $250k EBITDA): typically 1.5x – 2.5x
- Small businesses ($250k – $1m EBITDA): typically 2.5x – 4x
- Mid-market ($1m – $5m EBITDA): typically 3.5x – 6x
- Above $5m EBITDA: often 5x+ depending on sector and growth profile
These are indicative ranges based on general market observation. The actual multiple your business commands within that range depends on the factors covered in the next section — and can only be determined through an independent assessment of your specific business.
Sector differences
Multiples vary significantly by industry. The ranges below draw on Australian broker transaction data, including published data from Lloyds Business Brokers, one of the few sources that publishes Australian SME deal multiples publicly. Treat them as directional benchmarks, not precise targets:
- Professional services (accounting, law, consulting): 3x – 5x, depending on client portability
- Technology and SaaS: can exceed 6x–8x where recurring revenue is strong and growth is demonstrable
- Trade and construction: typically 2x – 3.5x, reflecting project-based revenue and key person risk
- Retail and hospitality: often 1.5x – 2.5x, reflecting high operational risk and thin margins
- Healthcare and allied health: 3x – 5x where billing is diversified and not practitioner-dependent
- Manufacturing and logistics: 3x – 5x where contracts are in place and capital requirements are manageable
These are patterns, not rules. A well-run business in a lower-multiple sector can command a premium. A poorly-run business in a higher-multiple sector will be dragged down. And because comprehensive Australian SME transaction databases aren’t publicly available, the most reliable way to understand where your business sits in the range is an independent valuation — not a rule of thumb.
What Drives the Multiple Up
Two businesses with identical EBITDA can have very different valuations. The difference is risk. Buyers pay more for businesses where future earnings are more certain.
The factors that command a higher multiple:
Recurring and contracted revenue
A business where 70% of revenue renews automatically — subscriptions, retainers, long-term contracts — is worth more than one where the same revenue has to be re-won each year. Predictability reduces risk, and reduced risk increases the multiple.
Low customer concentration
No single client over 15–20% of revenue is the benchmark most buyers are comfortable with. A diversified client base means the loss of any one relationship doesn’t threaten the business.
Owner-independent operations
A business that demonstrably runs without the owner in every transaction — where systems, processes, and client relationships exist independently — is valued higher than one where the owner is the product.
Strong growth trajectory
A business with three years of consistent revenue and earnings growth is a different proposition to one that’s flat. Growth gives buyers confidence that the earnings they’re buying will continue to increase, not decline.
Clean financials and documentation
It sounds administrative but it matters. A business that produces clean, reconciled financials, with well-organised records and no ATO issues, signals professionalism and reduces the perceived risk of hidden problems.
What Drives the Multiple Down
The same logic in reverse. Factors that suppress the multiple:
- High customer concentration — one or two clients representing 30%+ of income
- Key person dependence — revenue or relationships tied to the seller personally
- Declining revenue trend — even if current earnings are strong, a downward trajectory signals risk
- Poor financial records — anything that makes due diligence hard creates doubt
- Sector headwinds — industries facing disruption or regulatory change are discounted
- Short-term contracts or predominantly transactional revenue — low visibility of future earnings
- Unresolved liabilities — ATO debt, disputes, or contingent obligations
If any of these apply to your business, they’re not necessarily disqualifying — but they will affect where in the range the multiple lands, and they give a buyer negotiating room.
The Multiple Is Negotiated, Not Fixed
The asking price implies a multiple. The sale price reflects what a buyer is prepared to pay given their assessment of the risk.
This is where having your own independent valuation, based on your own normalisation of earnings, matters. If you walk into a negotiation knowing your normalised EBITDA is $420,000 and comparable businesses in your sector trade at 3.5x–4.5x, you have a clear view of the range you’re negotiating within. If you don’t have that, you’re taking the broker’s word for it.
On the buy side, the same applies. The asking price implies a multiple. The question is whether that multiple is justified given the risk characteristics of the specific business. See our Buying a Business service for how we approach independent valuation assessment for buyers.
What Happens After the Multiple
The EBITDA multiple gives you the enterprise value — the value of the business itself. From there, the actual proceeds you receive depend on the structure of the deal.
Working capital adjustments, treatment of cash and debt, earn-out arrangements, and the tax outcome on your proceeds all affect the final number in your account. The CGT selling a business concessions can significantly reduce the tax on your gain — but they need to be structured correctly. And whether the deal is structured as an asset sale vs share sale affects both the buyer’s position and yours.
Enterprise value is the starting point, not the finish line.
How to Improve Your Multiple Before You Sell
If you’re 1–3 years from an exit, the multiple is something you can actively improve. It’s not fixed — it’s a function of how the business looks to a buyer at the time of sale.
The most impactful levers are reducing key person risk, building recurring revenue, diversifying the client base, and getting the financial records in good shape. Our article on how to prepare your business for sale covers these in detail.
Our business advisory and virtual CFO services are well suited to owners who want to build toward a premium exit over a defined timeframe — with someone watching the numbers and identifying the gaps along the way.
Common Questions
Is EBITDA the only valuation method used?
No. Asset-based valuation is used for businesses where the balance sheet drives value — manufacturing, property, asset-heavy operations. Revenue multiples are sometimes used for early-stage businesses without established profitability. Discounted cash flow is more common in larger transactions. But for most trading SMEs in Australia, the EBITDA multiple is the primary method. See our full guide on how to value a business in Australia for the complete picture.
How accurate are industry multiple benchmarks?
They’re directionally useful, not precise. The range for a sector tells you the territory you’re in. The specific multiple your business commands within that range depends on its individual characteristics. Two businesses in the same sector with the same EBITDA can easily have a 1x–2x difference in their effective multiple.
Should I try to maximise EBITDA right before selling?
Only if it’s sustainable. Buyers look at three years of financials, and they normalise aggressively. Artificially inflating one year’s EBITDA — cutting necessary costs, delaying investment — tends to be visible in the numbers and raises questions rather than increasing the multiple. Sustainable EBITDA growth over multiple years is what moves the needle.
Sources and methodology note
The sector ranges in this article draw on publicly available Australian broker transaction data, including industry multiple benchmarks published by Lloyds Business Brokers (lloydsbrokers.com.au). There is no comprehensive public database of Australian SME transaction multiples equivalent to those available in the US market. All ranges are indicative and based on market observation. The multiple applicable to any specific business requires independent assessment.
Ready to talk through your business’s valuation? Our Selling Your Business guide covers the full sale process.
Want to know what multiple your business is likely to command?
Book a discovery call. We’ll give you a realistic view of your normalised EBITDA, the multiple range for your sector, and what would move your number. No obligation.
