What Are Australian Small Businesses Actually Worth? A Plain-English Guide to Valuation Multiples

What is a valuation multiple?

A multiple is simply a ratio. You take a measure of what the business earns, and you multiply it by a number. The result is a rough estimate of what the business is worth.

The two most common multiples for small businesses in Australia:

SDE multiple (Seller's Discretionary Earnings)
Used for businesses under ~$1M in earnings where the owner is heavily involved. SDE = net profit + owner's salary + owner's benefits + one-off expenses + depreciation + interest. It answers: "How much money does the owner actually take home from this business?"

EBITDA multiple (Earnings Before Interest, Taxes, Depreciation and Amortisation)
Used for larger or more structured businesses, typically with a management layer. EBITDA strips out financing and accounting decisions to show the operating profit of the business regardless of how it's structured.

For most businesses in the $500K–$2M range, SDE is the more useful number. For $2M–$5M, you'll see EBITDA used more often.

The formula: Business value = Earnings × Multiple. A business earning $300K SDE at a 2.5x multiple = $750K valuation. Simple enough. The hard part is knowing what the right multiple is — and whether the earnings figure is real.

What determines the multiple?

Not all businesses are created equal. A café and a plumbing business might both earn $250K, but they're worth very different amounts. Here's what pushes the multiple up or down.

The multiple isn't a fixed number for an industry — it's a judgement call based on how these factors stack up for a specific business. Two plumbing companies can trade at completely different multiples.

Typical multiples for Australian small businesses by industry

A word of caution: there is no standardised database of SME transaction multiples in Australia. Unlike listed companies, small business sale prices aren't publicly reported. These ranges are compiled from broker data, valuation firms, and transaction analysis. Treat them as starting points, not gospel.

Trades and services (plumbing, electrical, HVAC, landscaping)

A one-person plumber with $200K SDE and no employees might sell at 1.5x ($300K). A commercial electrical company with $500K EBITDA, 15 staff, fleet vehicles, and government contracts might reach 3.5x–4.0x ($1.75M–$2M). The key question: does the business have its own reputation, or is it the owner's reputation with a company name on the ute? If every customer calls the owner's mobile, you're at the bottom of the range.

Hospitality (cafés, restaurants, bars)

Hospitality is hard. Thin margins, high staff turnover, lease dependency, weekend work, and enormous competition. A café earning $150K SDE might sell for $150K–$375K. The exceptions push higher: a restaurant with a strong brand, locked-in lease, liquor licence, and proven management team can exceed 3x. The real trap is the fit-out — a seller who spent $300K on a beautiful fit-out three years ago doesn't get that money back in the sale price. The value is in the earnings, not the marble benchtops.

Professional services (accounting, legal, consulting, financial planning)

Professional services are often valued on recurring revenue rather than earnings. An accounting firm with $800K in annual fees might sell for $640K–$1.2M, depending on client retention risk. The biggest factor: will the clients stay? If the owner is the relationship and the senior advisor, expect 20–30% client attrition in the first year after sale. That risk is priced into the multiple. Firms with multiple partners, staff who hold client relationships, and diversified fee bases command the top of the range. Financial planning practices have their own rules — typically valued at 2–4x recurring revenue.

Retail

Retail is under structural pressure from online competition. A newsagency or gift shop earning $120K SDE might sell at 1.0x–1.5x. A specialty retailer with a strong online channel, a loyal customer base, and a long lease might reach 2.5x. What matters most in retail is the lease. A retailer paying $60K/year rent on a lease that expires in 18 months is worth dramatically less than one paying $80K/year on a 5+5 lease — even if their earnings are identical.

Manufacturing and wholesale

Manufacturing businesses with proprietary products, established distribution channels, and capital-intensive operations tend to command higher multiples. The barriers to entry are real — you can't replicate a $2M production line on a weekend. The trap: check the capex schedule. A manufacturer trading at 4x EBITDA looks attractive until you realise they need $500K in equipment replacement in the next two years. Effective multiple after capex: 5.5x. Not so cheap anymore.

Digital and e-commerce

Location-independent, scalable, lower overheads, and often recurring revenue. An e-commerce business doing $400K SDE with diversified traffic sources and a growing subscriber base can comfortably fetch 3.5x–4.5x. The risk is platform dependency — if 80% of revenue comes from Amazon or a single ad channel, you're one algorithm change away from a very expensive lesson. That risk crushes the multiple.

Construction and building

Construction is cyclical, project-based, and capital-intensive. A builder with a $2M backlog and strong relationships with developers might command 3x+. A residential builder heavily dependent on the housing cycle and one or two referral sources sits at 1.5x–2x. Key question: what's contracted vs what's pipeline? A signed $1.5M project is worth something. A "verbal commitment from a developer we've worked with before" is worth much less.

The gap between asking price and reality

Asking prices in Australia are typically 20–40% above what businesses actually sell for. This isn't unique to business sales — houses have asking prices above expected sale prices too. But in business sales, the gap is often wider because:

• Sellers value their years of effort, not just the financial output
• Brokers set optimistic prices to win the listing mandate (the broker who says $1.2M gets the listing over the one who says $900K)
• "Adjusted" earnings are inflated by aggressive add-backs
• Goodwill is often the largest component and the most subjective

When you see a business listed at $1.5M, your starting analysis should be: "What would I need to believe for this to be worth $1.5M?" Then check whether you actually believe it.

The add-back problem

The single biggest source of valuation disagreement between buyers and sellers is the add-back. An add-back is an expense the seller removes from the P&L to increase the reported earnings. The theory is sound: if the owner runs their personal car through the business at $15K/year and you won't do the same, that's $15K of extra earnings you'll receive.

The problem is when add-backs become creative fiction:

• "One-off legal fees — $25K" — Were they actually one-off? Does this business attract litigation?
• "Owner's wife on payroll — $60K" — Does she actually work in the business? If so, you'll need to replace her.
• "Excessive owner travel — $20K" — Is the travel actually how the owner wins clients? Then it's not discretionary — it's a cost of revenue.
• "Depreciation — $40K" — Depreciation is a real expense. The equipment is actually wearing out. Adding back depreciation without considering replacement capex is a fantasy.

For every dollar of add-back you accept, you're paying that dollar multiplied by the valuation multiple. At a 3x multiple, a $30K add-back you shouldn't have accepted just cost you $90K.

What about goodwill?

In most small business sales, the purchase price breaks down into three components: plant and equipment, stock (at value), and goodwill. Goodwill is the difference between the total price and the tangible assets. In a services business with minimal physical assets, goodwill often represents 70–90% of the purchase price. You're paying for the customer relationships, the brand, the systems, the staff, the reputation.

This matters for two practical reasons:

Financing: Banks lend against tangible assets, not goodwill. If you're buying a $1M business and $800K is goodwill, the bank might only lend against the $200K in hard assets. See our guide to financing a business acquisition for how to structure around this.

Tax: The allocation between goodwill and other assets affects how both buyer and seller are taxed. Buyers generally prefer more value allocated to depreciable assets (which provide tax deductions). Sellers often prefer goodwill (eligible for CGT concessions). This is a negotiation point — and one where your accountant earns their fee.

How to use multiples without getting burned

Multiples are a starting point, not an answer. Here's the approach that works:

1. Calculate the earnings yourself. Don't accept the seller's "adjusted" figures at face value. Get the raw financials, calculate SDE or EBITDA yourself, and only accept add-backs you genuinely believe are discretionary. Our due diligence checklist walks through exactly how to do this.

2. Apply a range, not a single number. A landscaping business earning $300K SDE might be worth 2.0x–3.0x depending on the factors above. That's a range of $600K–$900K. Where it falls within that range depends on the specifics.

3. Sense-check against cash flow. Forget the multiple for a moment. If you buy this business for $900K, how long until you've earned your money back from the cash flow? If the answer is more than 5–6 years, the price is probably too high for a small business. If it's 3 years, ask yourself why it's so cheap.

4. Compare to alternatives. What else could you do with the same capital? If you're paying $900K for a business that generates $300K SDE, compare that to investing the $900K at 5% ($45K/year) or buying a different business. The acquisition needs to be materially better than the alternatives to justify the risk.

5. Remember you're buying a job as well as an investment. In a small business, the owner works in the business. If the SDE is $300K but you need to replace the owner's 50-hour weeks, your actual return is the SDE minus your opportunity cost. A business that pays you $300K SDE but requires 60 hours a week of your time may be paying you less per hour than your corporate job — with all the risk on top.

The bottom line

Valuation multiples are useful shorthand. They let you quickly assess whether a price is in the right ballpark and compare opportunities across industries. But they're a starting tool, not a finishing tool. The multiple tells you what the market typically pays. The due diligence tells you what this specific business is worth to you. Those are often very different numbers.

The best deals aren't always the lowest multiples. A business at 3.5x that has locked-in contracts, a strong team, and growth potential might be far better value than one at 2.0x that's declining, owner-dependent, and on a short lease.

Price is what you pay. Value is what you get. Understanding multiples helps you tell the difference.