How to decide the multiple to use for a business valuation: A data-driven approach

A long overdue, fresh approach for how to decide the multiple to use for a business valuation.

How to decide the multiple for a business valuation

One of the most common questions we get asked, "How to decide the multiple to use for a business valuation?"

When valuing a business, multiples are one of the most common, but often misunderstood, tools. Many owners make the mistake of applying generic industry averages without considering their company’s unique financial health, growth potential, and operational risks.

At Evo Valuations, we don’t just slap a standard multiple on your earnings and call it a day. Instead, we build a custom valuation model that reflects your business’s true worth by analyzing:

• Your industry’s benchmark multiples – Not all sectors are valued the same

• Your financial consistency – Consistent results matter more than a single year’s results

• Owner dependency – A business that can’t run without you is worth less than one that can

• Growth potential – Future earnings power impacts your multiple today

  
  

In this guide, we’ll break down how business valuation multiples really work, and how we tailor them for your unique situation.

What Are Business Valuation Multiples?

A valuation multiple is a ratio used to estimate a company’s worth based on its financial performance. The most common multiples include:

• EBITDA Multiple (Earnings Before Interest, Taxes, Depreciation & Amortization)

• Revenue Multiple (Useful for startups or high-growth firms)

• SDE Multiple (Seller’s Discretionary Earnings – Common for small businesses)

For example, if your business has an adjusted EBITDA of £200,000 and trades at a 4x multiple, your estimated value would be £800,000.

But here’s the catch: Not all businesses in the same industry deserve the same multiple.

How Evo Valuations Determines Your Custom Multiple

We go beyond generic industry averages by assessing four key factors:

1. Industry Benchmarking

Every sector has different risk and growth expectations, which impact multiples.

• High-growth tech firms → Higher multiples (5x–10x+)

• Stable service businesses → Moderate multiples (3x–5x)

• Owner-reliant consultancies → Lower multiples (1.5x–3x)

We compare your business against real transaction data in your sector—not just textbook averages.

2. Financial Consistency

A business with steady, predictable earnings commands a higher multiple than one with volatile profits. We analyze:

• 3+ years of revenue & profit trends

• Recurring vs. one-off income

• Gross margin stability

Example: Two £500k EBITDA businesses in the same industry could have different multiples if one has grown 15% annually while the other has erratic earnings

3. Owner Dependency Risk

If your business can’t operate without you, buyers will pay less. We adjust multiples based on:

🔴 High Dependency (Owner handles sales, operations, key relationships) → Lower multiple

🟢 Low Dependency (Management team in place, systems documented) → Higher multiple

Example: A £300k SDE marketing agency where the owner is the sole rainmaker might get a 2.5x multiple, while a similar agency with a sales team could command 4x.

4. Growth Potential

Future earnings power impacts today’s valuation. We assess:

• Market trends (Is your industry growing or declining?)

• Pipelines & contracts (Recurring revenue boosts value)

• Scalability (Can operations expand without proportional cost increases?)

A business with proven growth might get a premium multiple, even if current earnings are modest.

Why Generic Multiples Fail (And How We Fix It)

Many free online valuation tools use oversimplified multiples, leading to:

• Overvaluation (Using a 6x multiple when your business’s risks justify only 3x)

• Undervaluation (Missing premium potential due to strong growth or assets)

At Evo Valuations, we adjust your multiple based on real-world factors, including:

• Customer concentration risk

• Competitive advantages

• Asset strength (e.g., property, IP, contracts)

Get a Valuation That Reflects Your Business’s True Worth

Don’t guess, know what your business is worth with a custom valuation report from Evo Valuations.

• Precision Pricing – Multiples tailored to your financials, industry, and growth potential

• Maximised Value – Identify ways to improve your multiple before selling

• Defensible & HMRC-Compliant – No more disputes over unrealistic figures

Get Your Custom Valuation Now. Because your business deserves more than a generic guess.