The multiples method, also called the multiple method, is one of the common approaches to business valuation. It multiplies a financial metric by a sector-typical factor. Most of the time this is EBITDA, sometimes also revenue or profit. Fast, easy to follow and close to the market.
The factors come from actual sales of similar companies. Your business is therefore measured against what the market is currently paying for comparable firms. Depending on sector, size and earnings situation, the multiples vary widely.
The method is especially popular for small companies because it is simple and easy to follow. But it does not replace a thorough valuation. It provides an initial orientation and a range within which the company value lies.
The calculation is simple: metric times factor. What matters is an adjusted metric, corrected for one-off effects and a market-typical owner's salary. For small, owner-managed businesses, the EBITDA multiples often lie in the low single digits.
A multiple is always an average value. Your business may be worth more or less than the average because of special features: a particularly loyal core customer base, long-term contracts or a strong dependence on the owner.
For business sellers
For you as a seller, the method is useful for quickly getting a realistic order of magnitude. It shows you what the market pays for comparable businesses and protects you from an overblown or too low expectation.
But don't rely on it alone. If your business has strengths that the average factor does not reflect, you should be able to substantiate them. A well-maintained customer base or a stable cash flow often justifies a higher factor.
For corporate buyers
As a buyer, the method helps you assess an asking price. If it is well above the sector-typical multiple, ask critically what justifies the premium.
Check whether the factor used really fits the size and risk of the business. Small, strongly owner-dependent businesses are valued with lower factors than larger, stable companies with a broad customer base.
Example
A trade business achieves an adjusted EBITDA of 130,000 euros. With a sector-typical factor of 4, this results in a value of 520,000 euros. Because the business depends heavily on the owner, a somewhat lower factor is applied, and one arrives at a value of around 470,000 euros.
FAQ
Which metric is used in the multiples method?
Usually EBITDA, sometimes also revenue or profit. It is important that the metric is adjusted, corrected for one-off effects and a market-typical owner's salary.
How high are the multiples for small businesses?
For small, owner-managed companies, the EBITDA factors often lie in the low single digits. They depend heavily on sector, size and risk and cannot be set across the board.
Is the multiples method accurate?
It provides quick orientation, but not an exact valuation. Because it works with average factors, it should be combined with other methods such as the capitalised earnings method.
Does the method help with the decision to buy or start a business?
It shows you what an existing, high-earning business costs on the market. This lets you weigh whether the purchase price is worthwhile compared to the effort and risk of a new start-up.
Where do I get realistic multiples?
From empirical values on actual sales in your sector. Advisors, trustees and industry associations have such reference values. It is important that they fit the size and type of your business.
Why is a low factor not automatically bad?
A low factor often reflects a higher risk, for example a strong dependence on the owner. For a buyer, this can be a fair price for a realistically assessed risk.
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