Business sale multiples: EBITDA, profit and revenue

When businesses change hands, buyers and advisers often talk in multiples: «the business sold for X times EBITDA». A multiple is a number by which a measure of earnings or revenue is multiplied to arrive at a price. It is a practical language, but also one that is easily misunderstood — because what matters is which figure is being multiplied, and why the multiple is what it is.

This guide explains the most common multiples, what moves them, and how to use them without being misled by figures that do not fit your business. The overall valuation method — normalisation, DCF and asset value — is in chapter 3 of the seller guide.

The most common multiples

The EBITDA multiple

EBITDA is the most common measure when established businesses are bought and sold, because it compares operations without being affected by financing, tax and depreciation method. The drawback is that EBITDA ignores investment: a business that has to buy new machinery every year can have a healthy EBITDA but little left for the owner. That is why buyers also look at EBIT or at cash flow after investment.

Profit and SDE multiples

In small businesses where the owner works in the business, profit or SDE is often used. SDE includes the owner’s salary, so an SDE multiple is lower than an EBITDA multiple for the same business. Never compare the two directly, and always state in the sales material which figure is used.

Revenue and ARR multiples

A revenue multiple says nothing about what is left after costs. Two businesses with the same revenue can have completely different earnings. Revenue is therefore mostly used as a cross-check, or where profit is not yet meaningful — typically growing SaaS businesses, where the ARR multiple reflects that revenue is agreed in advance and can scale. See SaaS businesses for sale.

Enterprise value and the price for the shares

An EBITDA or EBIT multiple usually gives the enterprise value: the value of the operation before debt and cash are taken into account. The price for the shares is found by deducting interest-bearing debt and adding surplus cash. Many deals are therefore agreed «cash-free and debt-free» with a working capital adjustment on the takeover date.

This is one of the most common sources of misunderstanding. If the seller thinks in enterprise value and the buyer in the price for the shares, the difference can be the entire debt. Agree early — ideally in the letter of intent — what the price covers.

What moves the multiple?

The multiple is the buyer’s assessment of risk and growth. The more secure and growing the earnings, the more years of earnings the buyer is willing to pay for. The most important factors:

Size matters more than many think. A small business is more vulnerable to losing a customer, an employee or the owner, and the pool of buyers is smaller. That is why multiples for small businesses are generally lower than for large ones, even in the same industry.

Why multiples found online rarely fit

• Large deals: Many public figures come from acquisitions of large businesses or listed companies, where the risk is different.
• Other markets: Figures from abroad reflect other interest rates, taxes and buyers.
• Asking, not sale prices: Prices in listings are the seller’s expectation, not what was paid.
• Different measures: A multiple of SDE, EBITDA or profit after tax are three different numbers.
• Structure: A price with an earn-out and a seller loan is not the same as a cash price.
• Timing: Interest rates and market sentiment change multiples over time.

So use multiples as a starting point for a conversation, not as an answer key. Explain why your business carries higher or lower risk than average, and document it.

The multiple depends on the figure it is applied to

A multiple is only as good as the earnings behind it. If the owner’s salary has not been deducted, if there are private expenses in the accounts, or if last year was shaped by a one-off order, even a reasonable multiple gives the wrong price. That is why buyers often spend more time normalising earnings than discussing the multiple. Show your normalisations with documentation, and use an average of several years if earnings fluctuate.

Also be clear about the period the figure covers. A multiple of the last 12 months is something different from a multiple of next year’s budget. Buyers usually pay for what has been shown and let the budget come in through an earn-out if you disagree about the future.

Multiples and deal structure

The multiple quoted for a deal rarely tells the whole story. A price where part is an earn-out that may never be paid, or a seller loan at low interest over many years, is worth less to the seller than the same price paid in cash. Conversely, a buyer may accept a higher total price if part of it is only paid when results are achieved.

So always compare offers on what you actually get: the cash on the takeover date, the part that is certain but paid later, and the part that is contingent. The same applies when you read about other people’s deals. A high multiple with a large contingent part can be a lower price than a lower multiple paid in cash.

Industry figures from CVR

On Sitavo’s Danish industry pages under Sell a business, Sitavo shows figures from CVR by industry: how many active businesses there are, how many are established, and how many changed ownership in the last year. These are counts from CVR, not sale prices, and they cannot be turned into a multiple. They can be used to gauge how many potential buyers and sellers there are in the industry.

Using multiples in practice

1. Find the right figure: Normalise earnings for owner’s salary, one-off items and private expenses. See chapter 3.
2. Choose the measure: SDE for small owner-run businesses, EBITDA or EBIT for businesses with hired management, ARR for subscription businesses.
3. Assess the risk: Go through the factors above, and be honest about the weaknesses.
4. Calculate a range: Use Sitavo’s valuation tool, which shows a range based on your figures.
5. Test the result: Can a buyer finance the price, and how many years does it take to earn it back?
6. Agree what the price covers: Enterprise value or shares, with or without stock and working capital.

If you and the buyer are far apart, an earn-out or vendor financing can bridge the gap. For an independent valuation, you can have the business valued by a broker or find an accountant among Sitavo’s advisers. Once the price is settled, you can create the listing.