There is no single “correct” way to value a small business. The best approach depends on your industry, profitability, asset base, and what you’re trying to achieve. Here’s a comparison of the main methods used in Australia.
Method 1: EBITDA Multiple
Best for: Established, profitable businesses with consistent earnings.
Multiply your normalised EBITDA (earnings before interest, tax, depreciation and amortisation) by an industry-appropriate factor.
- Small businesses ($500K-$2M revenue): 2-4x EBITDA
- Mid-market ($2M-$10M revenue): 3-6x EBITDA
Pros: Widely understood by buyers, focuses on earning power, allows comparison across businesses.
Cons: Sensitive to normalisation assumptions, may undervalue high-growth businesses.
Method 2: Revenue Multiple
Best for: High-growth businesses, SaaS/tech, businesses with inconsistent profitability.
Multiply annual revenue by an industry factor (typically 0.3x-3x for small businesses).
Pros: Simple, useful when earnings don’t reflect potential.
Cons: Ignores profitability entirely, can dramatically overvalue or undervalue depending on margins.
Method 3: Seller’s Discretionary Earnings (SDE)
Best for: Owner-operated businesses under $2M revenue.
SDE = EBITDA + owner’s total compensation (salary, super, benefits, perks). This captures the total financial benefit to a single owner-operator.
Typical SDE multiples: 1.5x-3.5x.
Pros: Reflects the true earnings available to an owner-operator.
Cons: Only relevant for small, owner-operated businesses. Not used for larger transactions.
Method 4: Asset-Based
Best for: Asset-heavy businesses (manufacturing, property, mining), businesses being wound down, or businesses with low profitability.
Value = Total assets - Total liabilities.
Can use book value (accounting value) or market value (what assets could actually be sold for).
Pros: Provides a floor value, appropriate for asset-heavy businesses.
Cons: Ignores earning power and goodwill, typically undervalues operating businesses.
Method 5: Discounted Cash Flow (DCF)
Best for: Larger businesses with predictable cash flows and clear growth trajectories.
Projects future free cash flows over 5-10 years and discounts them to present value using a rate that reflects business risk.
Pros: Most theoretically rigorous, captures growth explicitly.
Cons: Highly sensitive to assumptions, complex, typically overkill for small businesses.
Method 6: Industry Rules of Thumb
Some industries have established rules of thumb:
| Industry | Rule of Thumb |
|---|---|
| Accounting practice | 0.8-1.5x recurring fees |
| Financial planning | 2-4x recurring revenue |
| Medical practice | $X per active patient |
| Real estate agency | 1-2x trail book |
| Childcare centre | $X per licensed place |
| Pub/hotel | $X per gaming machine + property value |
Pros: Quick, industry-specific.
Cons: Rules of thumb are rough averages — they don’t account for quality, growth, or risk.
Which Method Should You Use?
Use multiple methods and triangulate. If EBITDA multiple says $2M, revenue multiple says $1.5M, and asset value is $800K, you have a range of $1.5M-$2M with $800K as a floor.
The method that matters most is the one your buyer will use. Strategic buyers may value synergies. Financial buyers focus on earnings multiples. Asset buyers focus on tangible value.
Try our calculator for a quick EBITDA and revenue multiple estimate, or speak with us for a thorough, multi-method valuation.