Almost every owner who starts thinking about an exit arrives at the same question: what multiple will my business sell for, and is that a good one? It is the right question. It is also one that gets answered badly, usually with a single number pulled from an industry average and applied to a company it does not describe.
A good EBITDA multiple is not a benchmark you hit. It is the multiple your business can defend under a buyer’s scrutiny. Two companies in the same sector, with the same earnings, routinely trade three or four turns apart, and the gap is almost never about the industry. It is about the quality of what is being bought.
What a Good Multiple Actually Means
An EBITDA multiple is shorthand for risk and growth. When a buyer pays 7x earnings instead of 4x, they are saying they expect those earnings to continue without them, and probably to grow. When they offer 3x, they are pricing in the work required to keep the business running once the owner is gone.
So the honest answer to what counts as good depends on where you start. In the lower middle market, most businesses transact somewhere between 3x and 8x adjusted EBITDA. Sector matters, and our reference table of EBITDA valuation multiples by industry shows where each one currently sits. But within any sector, the spread between the weakest and strongest companies is wider than the spread between sectors.
Five Things That Move Your Multiple
Size. This is the most reliable driver of all. A company with $1 million of EBITDA and a company with $8 million of EBITDA, in the same industry, doing the same work, will not receive the same multiple. Larger businesses attract a deeper pool of buyers, including private equity funds with mandates that exclude anything smaller, and competition raises the price. The step up is real and it is often two turns or more.
Owner dependence. If the relationships, the pricing decisions, and the technical knowledge live in the owner’s head, a buyer is not acquiring a business. They are acquiring a job with a transition risk attached. Companies with a real management layer beneath the owner consistently command more, because the earnings survive the closing.
Customer concentration. One client at forty percent of revenue is the single fastest way to lose a turn or two. Buyers model what happens if that client leaves, and the answer usually reprices the deal. Concentration is not always fatal, but it needs a story: contract length, switching costs, relationship depth beyond the owner.
Margin quality and trend. Buyers look at the direction as much as the level. Three years of expanding margin says pricing power and operating discipline. A margin that peaked two years ago invites questions about whether the recent number is repeatable, and cautious buyers discount what they cannot verify.
Recurring versus project revenue. Contracted, repeating revenue is worth more per dollar than work that has to be won again every quarter. This is why service businesses with maintenance agreements outprice otherwise identical competitors who sell one job at a time.
Why the Industry Average May Be the Wrong Target
Industry ranges are a starting point, not a forecast. They are drawn from transactions of varying size, structure, and quality, and the average conceals exactly the variables that will decide your outcome.
The trap works in both directions. An owner in a sector that averages 6x can be disappointed by a 4x offer that is, given the concentration risk in the business, a fair price. An owner in a sector that averages 4x can leave money on the table by accepting the first offer at 4.5x, when the recurring revenue base and second-tier management team justified considerably more.
The same caution applies to how the multiple is calculated in the first place. Public company comparables are drawn from businesses with liquidity, disclosure and scale that a private company does not have, so how market capitalization is calculated tells you very little about what a privately held company is worth. Private company multiples sit lower for structural reasons, not because the business is weaker.
What Buyers Pay a Premium For
Above-range multiples go to businesses that reduce a buyer’s work. In practice that means clean financials that survive diligence without restatement, a management team that stays, documented processes rather than institutional memory, a diversified customer base, and a credible growth path the buyer can fund rather than invent.
None of these are quick fixes, which is the useful part. Most of them can be built in the eighteen to thirty-six months before a sale, and the return on that work is measured in turns of EBITDA, not percentage points. A business improving from 4x to 6x on $2 million of earnings has added $4 million of value without adding a dollar of revenue.
Make Sure You Are Multiplying the Right Number
One last point, and it is the one most often missed. A multiple means nothing without the earnings figure it applies to. Reported EBITDA and the adjusted EBITDA a buyer will actually pay on are rarely the same, and the difference comes from normalising owner compensation, discretionary spending and one-time items.
Smaller companies are often valued on seller’s discretionary earnings instead, which is a different base entirely and carries different multiples. Getting that choice wrong produces a valuation that is off by a wide margin, so it is worth understanding whether SDE or EBITDA applies to your business before comparing your number to anyone else’s.
The Multiple You Should Be Aiming For
A good EBITDA multiple is the highest one your business can support with evidence. That number is knowable well before you go to market, and the gap between it and what you would receive today is the most valuable thing an owner can measure.
If you want to know where your business sits and what would move it, our team works with owners on exactly that question, often years ahead of a transaction.
