If you're thinking about selling your business, there's one question that comes before everything else: what is it actually worth?
Your business is worth what someone will pay for it, but that number isn't random. Buyers have frameworks, lenders have benchmarks, and brokers use well-established methods to arrive at a defensible number. Understanding those methods puts you in a stronger position, whether you're selling next month or just want to know where you stand.
If you're looking for the full sale process, my guide to selling a small business in Sydney covers that end to end.
The two numbers that matter: SDE and EBITDA
Before you can value your business, you need to know which earnings figure to use.
- Seller's Discretionary Earnings (SDE) is the standard for owner-operated businesses. It takes your net profit and adds back the owner's salary, super, personal expenses run through the business, and one-off costs. It represents the total financial benefit the business provides to one full-time owner.
- EBITDA (earnings before interest, tax, depreciation, and amortisation) is used for larger businesses, typically those with $1M+ in annual profit or where a management team runs operations.
Quick example:
| SDE | EBITDA | |
|---|---|---|
| Net profit | $200,000 | $200,000 |
| + Owner's salary ($120k) | Included | Not included |
| Total | ~$320,000 | ~$200,000 |
For most small businesses in Sydney changing hands for under $2M, SDE is what buyers and brokers will use. KMF Business Advisors walks through the distinctions in more detail.
How the earnings multiple works
The most common valuation method is the Capitalisation of Future Maintainable Earnings (CFME). The concept is straightforward:
Business Value = Maintainable Earnings x Multiple
You take your SDE or EBITDA (averaged across the last three years) and multiply it by a number that reflects the risk and return profile of the business. If you want to try it now with your own numbers, use the free business valuation calculator.
Two quick examples:
| Business | Earnings | Multiple | Valuation |
|---|---|---|---|
| Cleaning company | $150,000 SDE | 2.0x | $300,000 |
| Professional services | $400,000 EBITDA | 3.5x | $1,400,000 |
The multiple is where all the nuance lives. It's shaped by your industry, earnings stability, how dependent the business is on you, and market conditions. Two businesses in the same industry with identical revenue can have very different multiples.
The CPA Australia succession planning guide and GT Advisory both provide detailed walkthroughs.
Multiples by industry
Here's what recent Australian transaction data shows for small businesses:
| Industry | Multiple range | What drives the range |
|---|---|---|
| Cleaning services | 1.5 - 2.5x SDE | Managed operations with contracts at top end; solo residential at bottom |
| Hospitality (cafes, restaurants) | 1.5 - 2.5x SDE | Lease length, brand strength, trading hours |
| Trades and construction | 2.0 - 3.5x SDE | Project-based risk, key person dependence |
| Childcare | 3.0 - 5.0x EBITDA | Occupancy rates, waitlists, centre size (single site) |
| Professional services | 3.0 - 5.0x EBITDA | Recurring revenue, client portability |
| Technology and SaaS | 4.0 - 8.0x EBITDA | Recurring revenue strength, growth rate |
These are ranges, not guarantees. A cleaning business with $500,000 in locked-in commercial contracts and documented systems will command a very different multiple to a solo residential operation with the same revenue. My guide to selling a cleaning business explores this gap in detail.
For a deeper breakdown across 18 Australian industries, see my guide to small business valuation multiples by industry. Nash Advisory and New Chapter Business Sales are also useful references.
Other valuation methods
The earnings multiple is the workhorse, but a good valuation often triangulates across methods:
- Asset-based valuation. Totals the fair market value of what the business owns minus what it owes. Most useful for asset-heavy businesses (transport fleets, manufacturing) or businesses being wound down. Understates value for service businesses because it misses goodwill.
- Discounted Cash Flow (DCF). Projects future cash flows and discounts them to today's dollars. More rigorous in theory, but small changes in assumptions can move the number by 30-50%. Best for rapidly growing businesses. Sprintlaw covers when each method fits best.
- Market comparables. Looks at what similar businesses actually sold for. Business brokers often have access to comparable sales databases that aren't publicly available.
- ROI method. If a buyer wants a 33% annual return (3-year payback), they'd pay up to 3x annual profit. Simple, but useful as a sense-check.
What moves your multiple up or down
Pushes it up:
- Recurring or contracted revenue. Locked-in contracts reduce buyer risk. The more predictable the income, the higher the multiple.
- Runs without you. If you could take a month off and the business keeps operating, that's a strong signal. Owner dependence is the single biggest discount buyers apply.
- Documented systems. Written procedures make the business transferable and make due diligence smoother.
- Diversified customer base. No single customer above 15-20% of revenue.
- Growth trajectory. Steady or growing revenue over three years. Buyers pay for momentum.
- Long, secure lease. Fewer than three years remaining can significantly reduce your valuation or make the business unsaleable.
Pulls it down:
- Owner dependence. If every relationship and decision runs through you, buyers see a job, not a business.
- Inconsistent earnings. One great year followed by two average ones raises questions.
- Customer concentration. One client at 40% of revenue is a single point of failure.
- Messy financials. Buyers walk away or discount heavily. Step 1 of my selling guide covers how to fix this.
- Deferred maintenance. Ageing equipment, outdated fitouts, or neglected systems create hidden costs for the buyer.
- Compliance gaps. Unlicensed operators, expired certifications, or pending issues are deal-killers.
The goodwill factor: Most of a small business's value is goodwill (the intangible value above physical assets). The key insight: goodwill tied to you personally (your relationships, reputation) is worth less than goodwill tied to the business (brand, systems, team, contracts). Every step you take to shift value from personal goodwill to business goodwill increases your price. Bridgepoint Group covers this in depth.
A worked example
A commercial cleaning business in Sydney's inner west:
| Revenue | $650,000/year |
| Owner's salary | $100,000 |
| Net profit (after salary) | $120,000 |
| SDE | $235,000 |
| Commercial contracts | 8 (avg. 18 months) |
| Staff | 6 employed cleaners |
| Largest client | 12% of revenue |
| Systems | Documented (quoting, onboarding, QC) |
The valuation: Cleaning businesses trade at 1.5-2.5x SDE. This one has contracts, employed staff, documented systems, and diversified revenue, so it sits toward the top of the range.
| Multiple | Calculation | Valuation |
|---|---|---|
| 2.0x | $235,000 x 2.0 | $470,000 |
| 2.3x | $235,000 x 2.3 | $540,000 |
Plus equipment/vehicles/stock = total asking price of $500,000 - $560,000.
How a buyer might finance this:
| Deposit (40%) | $190,000 cash |
| Bank loan | $285,000 at 7.5% over 5 years |
| Annual repayments | ~$68,400 |
| SDE minus debt service | ~$167,000 take-home |
That's a strong income and a comfortable debt coverage ratio, which means a bank is likely to fund it. If the buyer negotiates vendor finance ($50,000 over 12 months), the bank loan drops further and the numbers get even more comfortable.
My guide to selling a small business covers vendor finance, earn-outs, and how to protect yourself with a PPSR registration.
Should you get a professional valuation?
Professional valuations cost $3,000 to $10,000 for most small businesses.
Get one if:
- You're planning to sell within 12 months and want a defensible asking price
- You're in a dispute (family law, partnership split) where an independent number is required
- You want to understand what's dragging your value down before you go to market
Skip it if:
- Your broker includes a valuation in their service (most do, though depth varies)
- You're selling to a known buyer and both parties are comfortable with the financials. My guide to selling to an individual buyer vs a competitor covers how different buyer types approach valuation.
Look for Registered Business Valuers through the AIBB. The business.gov.au valuation guide is also a useful starting point.
Five things you can do now to increase your valuation
- Clean up your financials. Separate personal and business expenses. Three years of clean accounts is the minimum.
- Reduce your involvement. Start delegating quoting, client meetings, and quality checks. Every task you hand off increases transferability.
- Lock in contracts. Move customers from informal arrangements to documented agreements. Even 12-month service contracts improve your multiple.
- Diversify your revenue. If one or two clients dominate, actively pursue new business over 12-24 months.
- Document everything. SOPs, training guides, supplier lists, login credentials, process maps. The more a buyer can see themselves stepping in from day one, the more they'll pay.
What to do next
Start with your SDE: add your net profit, salary, super, and personal expenses running through the business. Then look at the multiples for your industry.
If you're serious about selling, talk to your accountant about a formal valuation, or engage a broker who can provide one as part of their service. Understanding your number early gives you time to fix what's dragging it down.