Valuation multiple
A valuation multiple is the number applied to a business's earnings to estimate its value, reflecting risk, growth and comparable sales in BC
A valuation multiple is the factor by which a measure of earnings, usually seller's discretionary earnings for small businesses or normalised EBITDA for larger ones, is multiplied to arrive at an estimate of value. It is the market's shorthand for how many years of earnings a buyer will pay for today, and it reflects how confident buyers are that those earnings will continue.
Multiples vary with industry, size, growth, customer concentration, owner dependence, recurring revenue, the quality of the financial records and the general appetite of buyers and lenders. Larger and more predictable businesses attract higher multiples. Businesses that depend on the owner, on a few customers or on a short lease attract lower ones. The right range for a BC business comes from comparable transactions, which is why the market multiples method is one of the three used in our valuation.
In practice, owners hear a multiple at a seminar or from a friend and apply it to the wrong earnings figure, which produces a price the market rejects. A multiple only means something attached to the right measure of earnings and to a business of comparable size and risk. Our valuation report explains the multiple applied, the comparables behind it and the factors that would move it up or down, so the owner knows what to fix before selling.
Start with a confidential conversation.
Tell Ali where the business is and what you want to happen next. You leave with a straight read on value, timing and the two or three moves that matter, whether or not we work together.