Valuation
Valuation Multiple
Also known as: EBITDA multiple, earnings multiple, deal multiple
The number applied to EBITDA to calculate the purchase price. A business with $4M EBITDA at a 7× multiple is priced at $28M. Every risk the buyer finds pushes the multiple down.
WHY IT MATTERS
The valuation multiple is the number that turns your earnings into a price tag. If your business generates $4 million in EBITDA and the market says businesses like yours trade at 7×, the starting price is $28 million. But that starting price is exactly that — a starting point. Every risk the buyer finds during diligence pushes the effective multiple down. Customer concentration, key-person dependency, contract issues, financial irregularities — each one shaves a fraction of a turn off the multiple or triggers a structural adjustment that achieves the same result. Multiples vary by industry, growth rate, size, and market conditions. A $4 million EBITDA business in a fragmented industry with clean books might trade at 6–8×. The same earnings with customer concentration and founder dependency might trade at 4–5×. The founder’s job in exit preparation is to protect the multiple by resolving the risks that compress it — before the buyer’s diligence team finds them.