EQUITY INVESTORGATEWAY

Valuation guide

How Australian SMEs are valued

Most owners only need the first method, the EBITDA multiple. Understanding the others helps you test the number a buyer, broker or investor puts in front of you.

  1. 01

    EBITDA multiple

    The earnings method most buyers and brokers start with

    Enterprise value = Normalised EBITDA × Industry multiple

    Take normalised EBITDA (operating profit before interest, tax, depreciation and amortisation, adjusted to reflect what a new owner would actually earn), multiply by an industry-calibrated multiple, then adjust for risks such as customer concentration, reliance on the owner and growth outlook.

    Best suited to
    Established businesses with a manager in place and predictable earnings over two to three years. The usual starting point for trade buyers.
    Typical range
    Commonly 2× – 5× EBITDA for Australian SMEs. Recurring-revenue professional services can sit higher; owner-operated hospitality often sits lower.

  2. 02

    SDE multiple

    Seller's Discretionary Earnings, the owner-operator standard

    Value = (EBITDA + Owner's wage + Owner perks) × SDE multiple

    SDE adds one full owner's wage and benefits back to operating profit, then applies a lower multiple. It compares owner-operated businesses like-for-like, because the buyer is buying both a business and a job.

    Best suited to
    Smaller businesses where one owner runs day-to-day operations.
    Typical range
    Commonly 1.5× – 3× SDE.

  3. 03

    Revenue multiple

    Useful when profit does not yet tell the story

    Value = Annual revenue × Revenue multiple

    Applies a multiple to turnover rather than profit. It is common for fast-growing or recurring-revenue businesses that are reinvesting heavily, where current earnings understate what a buyer is paying for.

    Best suited to
    Software, subscription and high-growth businesses; also a quick cross-check for other methods.
    Typical range
    Varies widely by sector, growth rate and gross margin. Low-margin businesses usually trade well below 1× revenue.

  4. 04

    Asset-based

    Market value of assets minus liabilities

    Value = Market value of assets − Liabilities

    Adds up the market value of tangible and intangible assets (plant, equipment, fit-out, stock, intellectual property) and subtracts liabilities. Used when the operating business is worth less than its parts, or for asset-heavy operations.

    Best suited to
    Asset-heavy businesses such as manufacturing, hire and fleet, or sales where earnings do not support goodwill.
    Typical range
    Produces a floor value. Goodwill is whatever a buyer pays above it.

  5. 05

    Discounted cash flow

    Present value of projected future cash flows

    Value = Σ FCFₜ ÷ (1 + WACC)ᵗ + Terminal value ÷ (1 + WACC)ⁿ

    Forecasts free cash flow for five to ten years, discounts each year back to today at a risk-adjusted cost of capital, and adds a terminal value for the years beyond. Rigorous, but very sensitive to the discount rate and growth assumptions.

    Best suited to
    Businesses with predictable multi-year cash flows such as long contracts or subscriptions, and negotiations with institutional investors.
    Typical range
    Produces a dollar value rather than a multiple.

  6. 06

    Comparable sales

    What similar businesses actually sold for

    Value = Observed sale multiple × Your revenue or EBITDA

    Looks at recent sales of similar businesses, adjusts for size and quality, and applies the observed multiple. Powerful where good transaction data exists; limited in niche industries with few sales.

    Best suited to
    Industries with active, transparent deal flow. Best used as a cross-check against an earnings-based estimate.
    Typical range
    Follows recent completed sales in the same sector and size bracket.

Illustrative estimate · not a valuation

Sample valuation estimator

Enter a few figures to see how an EBITDA-multiple and SDE estimate are built. It is a teaching tool, not a figure to rely on for a sale, refinance or negotiation.

Operating profit before interest, tax, depreciation and amortisation, adjusted for one-offs and above-market owner wages.

One full owner's wage, added back to EBITDA.

EBITDA-multiple estimate

$350,000 × 3.5 – 6.0

Low
$1,225,000
Mid
$1,575,000
High
$2,100,000

SDE-multiple estimate (owner-operator)

SDE $440,000 × 1.5 – 3

Low
$660,000
Mid
$990,000
High
$1,320,000

This calculator provides an illustrative estimate only and does not constitute professional valuation advice. Industry multiples are sample bands, not market quotes. Engage a qualified valuer or accountant before relying on a figure.

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