Small business valuation multiples in Australia: what to pay so the purchase pays you back

Small business valuation multiples in Australia for owner-operated businesses are commonly quoted at about 1.5 to 4 times adjusted annual profit. The multiple matters less than the profit you apply it to. Put a market wage in place of the owner’s unpaid hours first. Then check whether the price, plus the total cost of finance, pays back in a timeframe you can carry.

Nearly every valuation article out there is written for sellers, and sellers want the biggest number they can defend. This one is for the buyer: the owner who wants to grow by buying a competitor, a retiring operator or a customer book, and needs to know the most they can pay while the deal still adds to the business.

What multiple do small businesses sell for in Australia?

There is no official table. Brokers, accountants and legal guides tend to quote similar indicative bands, and the spread is wide for good reason.

Type of business	Indicative multiple of adjusted profit	Why
Owner-dependent hospitality and retail	About 1.5x to 2.5x	Customers follow the owner, leases are short and margins are thin
Trades and home services	About 2x to 3.5x	Repeat work and a team, but often still owner-led
Professional services and recurring-contract books	About 3x to 4x+	Predictable revenue and documented client relationships

For comparison, listed Australian business services companies traded on an EV/EBITDA multiple of 7.8x at the end of June 2026, against 8.3x for the ASX200, according to InterFinancial’s July 2026 industry update. A small private business sells for a fraction of that because it is riskier. It depends on a few people and a few customers, its records are thinner, and it’s hard to sell your stake on a Tuesday afternoon.

business.gov.au is blunt about it: “there is no one set valuation method”, and its valuation guide lists market comparison, return on investment, asset value, cost to start from scratch and future profit. Buyers almost always end up arguing about future profit. The multiple is just shorthand for it.

SDE vs EBITDA: which profit is the multiple applied to?

This is where buyers overpay without noticing. Two figures get used, and they can differ by six figures.

Measure	What it includes	Usually used for
SDE (seller’s discretionary earnings)	Net profit plus the owner’s wage, super and perks, plus one-off costs	Small owner-operated businesses with one working owner
Normalised EBITDA	Net profit plus one-offs, with the owner’s role costed at a market wage	Businesses that run with a manager or team

An SDE multiple assumes you’ll do the owner’s job yourself. If you’re buying a competitor to bolt on, you probably won’t. You’ll need someone to run the second site, or your own hours will be split in two. In that case the honest figure is normalised EBITDA, and the honest multiple looks much higher.

So when a broker says “it’s only 2.5 times”, ask: “2.5 times what?”

How do you normalise the owner’s wage?

Rebuild the seller’s profit as if the business had to pay someone to do everything the owner does.

1. Start with net profit from the last three years of accounts. business.gov.au recommends reviewing three to five years of financials, BAS and cash flow statements when you buy an existing business.
2. Add back genuine one-offs and personal costs, such as a one-off legal dispute or the owner’s private car run through the books. Ask for evidence. “Trust me” isn’t an add-back.
3. Subtract a market wage for every role the owner fills: manager, estimator, salesperson, bookkeeper on weekends.
4. Add 12% super on that wage. The super guarantee is 12% of ordinary time earnings, as the ATO explains, and under Payday Super it is now paid every payday.
5. Check the result against the bank statements, not just the profit and loss.

What’s left is the profit a buyer actually acquires. Apply the multiple to that.

What pushes a multiple up or down?

Pushes the multiple up	Pushes it down
Recurring or contracted revenue	One customer is more than 20% of sales
Staff who stay and know the systems	Key relationships sit with the owner personally
A long, transferable lease	A lease that ends soon or can’t be assigned
Clean books that match BAS lodgements	Cash takings or unexplained add-backs
Steady or growing earnings over three years	One great year after two flat ones

Each risk on the right is a reason to offer lower, or to move part of the price into an earn-out that’s only paid if the risk doesn’t happen.

How much should I pay for a business? Turn the multiple into a payback period

Here’s the simplest conversion. business.gov.au’s return-on-investment method divides annual net profit by the price. Flip it, and a multiple is a payback period before finance costs:

• 2x earnings is about a 50% annual return, or 2 years to recover the price;
• 3x earnings is about 33%, or 3 years;
• 4x earnings is about 25%, or 4 years.

If you’re borrowing, add the total cost of finance in dollars to the price, because that’s what you really pay. Then test two things: does the yearly profit cover the yearly repayments with a buffer, and how many years until the whole outlay is recovered? Our payback period guide and the total cost of finance explainer walk through both.

A worked example (illustrative)

A plumbing business is offered a retiring competitor’s operation for $600,000. Revenue is $1,200,000 with a 40% gross margin. Reported net profit is $210,000, and the owner takes their income as profit rather than wages.

Step 1: normalise.

Line	Amount
Reported net profit	$210,000
Add back: owner’s private vehicle and phone	$14,000
Add back: one-off legal dispute	$11,000
Seller’s discretionary earnings (SDE)	$235,000
Less: operations manager to replace the owner ($100,000 + 12% super)	−$112,000
Normalised earnings	$123,000

The asking price is 2.6 times SDE, which sounds reasonable. It is 4.9 times normalised earnings, which doesn’t.

Step 2: the buyer’s own view. The buyer assumes 10% of gross profit walks out the door with the old owner ($480,000 × 10% = $48,000). Sharing the yard, software and bookkeeping saves about $40,000 a year. Expected earnings to the buyer: $123,000 − $48,000 + $40,000 = $115,000 a year.

Step 3: test prices. The buyer borrows the full price over five years. In this illustration the lender’s quoted total cost of finance comes to about $30 for every $100 borrowed.

Price	× SDE	× normalised	Total cost of finance	Total outlay	Yearly repayment	Coverage ($115k ÷ repayment)	Years to recover outlay
$600,000	2.6x	4.9x	$180,000	$780,000	$156,000	0.74x	6.8
$500,000	2.1x	4.1x	$150,000	$650,000	$130,000	0.88x	5.7
$400,000	1.7x	3.3x	$120,000	$520,000	$104,000	1.11x	4.5
$350,000	1.5x	2.8x	$105,000	$455,000	$91,000	1.26x	4.0

The buyer wants earnings to cover repayments at least 1.25 times. That caps yearly repayments at $92,000 ($115,000 ÷ 1.25), or $460,000 over five years, which supports a price of about $354,000 ($460,000 ÷ 1.3).

So the offer is $350,000 upfront, plus an earn-out of up to $70,000 after 12 months if retained gross profit holds at 90% or better. The seller can still reach $420,000 if the customers stay, and the buyer only pays the extra from earnings that have actually arrived.

A quick stress test: if retention fell to 80%, expected earnings would drop to $67,000. At the full $600,000 price, that would barely cover 43% of the repayments.

Run your own figures through the Growth ROI calculator before you make an offer. Once you know your walk-away price, check your funding options here.

Is a competitor worth more to you than to anyone else?

Often, yes, and that’s exactly why you shouldn’t tell the seller. Shared vans, a combined yard, one set of software licences and buying power with suppliers are savings you create. If you pay for them in the price, you’ve handed the seller your profit.

Use the seller’s normalised earnings to set the price, and keep your synergies as the margin of safety. Our buying a competitor playbook covers retention, integration costs and due diligence in more depth, and ROI on borrowed money shows how to weigh the purchase against winning the same customers yourself.

Does the 2027 CGT change affect negotiations?

It might affect timing. The 2026–27 Federal Budget announced that the 50% capital gains tax discount for individuals and trusts would be replaced by cost-base indexation for gains from 1 July 2027. Some sellers may therefore want to settle before 30 June 2027. The small business CGT concessions are a separate set of rules, and how the change applies to a particular sale is a question for the seller’s accountant.

For a buyer, the practical point is simple. A seller with a deadline values certainty, and certainty is worth something in the negotiation. Being organised counts: finance pre-checked, due diligence list ready, accountant briefed.

How do buyers fund the purchase?

• Property-secured loan. Goodwill alone rarely secures much lending, so acquisitions are often funded against residential or commercial property, from $20,000 to $5,000,000.
• Vendor finance. The seller takes part of the price over time, which reduces what you borrow and keeps them invested in the handover.
• Earn-out. Part of the price is paid only if agreed results arrive. This is the cleanest fix for retention risk.
• Unsecured or cash-flow funding. For smaller purchases such as a customer book, typically $5,000 to $500,000, sized on your existing turnover.
• Equity. Bringing in a partner to share the price. Our debt vs equity guide compares the long-run cost.

Found a business worth buying? Let’s see if the numbers get funded

Buying a competitor can add years of growth in one settlement. It works best when the price comes from honest earnings and the funding fits the payback period. If your walk-away price is worked out and the seller is talking, the next question is how to fund it.

Telling us about the deal takes about a minute. That first enquiry doesn’t touch your credit file, so asking costs you nothing on your credit score. Your details aren’t sent out to a pile of lenders either, so you won’t spend the following week screening calls from strangers. A real person reads the purchase price, your trading figures and any security you can offer, then rings you to talk through structures that suit, including vendor finance or an earn-out. Please fill in the form accurately: real turnover, the actual asking price and what you plan to offer. Accurate details are how we find the right fit the first time.

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