How to decide multiples when valuing a small business

How to decide multiples when valuing a small business

One of the most common questions we get at Evo-Valuations is: "How to decide multiples when valuing a small business?" It’s a fair question and an essential one. After all, even a 0.5x change in the multiple can add or remove hundreds of thousands, even millions, from your valuation.

Understanding the Importance of Multiples

It the most important question of all, "How to decide multiples when valuing a small business?", Multiples are crucial in determining the value of your business. They serve as a benchmark, helping you understand how your company stacks up against others in your industry. This understanding can empower you to make informed decisions about your business's future.

It All Starts With the Industry

Different industries trade at different typical multiples. A scalable SaaS business might command 4x–8x, while a local service business might sit between 1.5x–3x. Our first step is always to benchmark your company against similar businesses in your sector, using up-to-date, real-world market data.

Size Really Does Matter

We then factor in the size of your business, particularly annual revenue and net profit. Larger, more systemised businesses tend to receive higher multiples due to lower perceived risk and greater buyer interest. If your business is small, don’t worry! There are still ways to enhance its value.

Adjustments Based on Longevity and Owner Reliance

How long has your business been established? If it’s been running steadily for 10+ years, that track record adds value, and your multiple goes up. If, however, your business is heavily reliant on you, the owner, we’ll apply a downward adjustment. Buyers want businesses that don’t fall apart when the founder steps away.

Consistency is King

A strong history of profitability and year-on-year growth is a major driver of higher multiples. On the flip side, volatility, declining revenues, or uneven margins can pull a multiple down fast. It’s essential to maintain a steady performance to keep your valuation strong.

How to decide multiples when valuing a small business: Use Our Proprietary AI + Dual Valuation Model

At Evo-Valuations, we go far beyond generic rules-of-thumb. We use proprietary AI software to generate a tailored set of adjusted multipliers for every client, blending market data, your financials, and risk factors. Then, we run your business through our dual EBITDA and Net Profit valuation model to produce a realistic and defensible valuation.

The result? A clear, confidence-building valuation number, backed by logic, data, and years of market insight.

The Process of Valuing Your Business

Step 1: Initial Consultation

We begin with an initial consultation. This step allows us to understand your business, its unique challenges, and its strengths. We’ll discuss your goals and what you hope to achieve with the valuation.

Step 2: Data Collection

Next, we gather all necessary data. This includes financial statements, tax returns, and any other relevant documents. The more accurate and comprehensive the data, the better our valuation will be.

Step 3: Market Analysis

We conduct a thorough market analysis. This involves researching similar businesses in your industry to determine the appropriate multiples. We look at recent sales, market trends, and economic conditions.

Step 4: Valuation Calculation

Using our proprietary AI software, we calculate your business's value. We apply the adjusted multiples based on the data we've collected and the analysis we've conducted.

Step 5: Review and Adjustments

Once we have a preliminary valuation, we review it with you. We’ll discuss any adjustments that may be necessary based on your specific circumstances. This collaborative approach ensures you understand every aspect of the valuation.

Step 6: Final Report

Finally, we provide you with a comprehensive valuation report. This document outlines our findings, the methodology used, and the final valuation. It serves as a valuable tool for any future business decisions you may make.

Why Choose Evo-Valuations?

Choosing the right partner for your business valuation is crucial. At Evo-Valuations, we pride ourselves on our accuracy, transparency, and client-focused approach. Our goal is to empower you with the knowledge you need to make confident decisions during critical life and business events.

Ready to See What Your Business Is Worth? Get a FREE sample valuation report from Evo-Valuations today.

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