EBITDA multiple explained in plain English

You may hear buyers talk about an 'EBITDA multiple'. Here's what it means, without the jargon.

What EBITDA means

EBITDA is roughly your yearly profit before interest, taxes, depreciation and amortization. It shows how much the business earns from its day-to-day work.

What a multiple means

A "multiple" is simply how many years of that profit a buyer is willing to pay. BDC says the most common way to set a fair price is a multiple of EBITDA, and that multiples often range between three and six times for small to medium-sized businesses, depending on the industry and market.

A simple example

If your business has an EBITDA of $150,000 and a buyer offers three times that, the price would be about $450,000. This is only an example. Your own multiple could be higher or lower.

Small owner-run businesses

Many small businesses are run by the owner every day. Buyers often look at what the business earns for an owner, and they take into account the cost of replacing you. This can lead to a lower multiple than for a larger, manager-run company. Our free estimate uses cautious rules of thumb for this reason.

What can raise or lower the multiple

• Raises it: steady profits, growth, loyal customers, good records, trained staff.
• Lowers it: profits that go up and down, heavy reliance on the owner, one big customer, a short lease.

See also: What is my small business worth?