What is the earnings multiple method?

It values a business by multiplying its annual earnings, such as SDE or EBITDA, by a multiple that reflects risk, size and growth. A higher multiple means buyers will pay more for each dollar of earnings. It is the most common method for small business sales.

What multiple should I use?

Multiples depend on your industry, earnings stability, growth and how reliant the business is on the owner. Recurring revenue and a strong team push the multiple up, while owner dependence pushes it down. Look at recent comparable sales in your sector.

Is this a formal valuation?

No. This is an indicative estimate only and ignores assets, debt and many deal specific factors. For a sale, purchase or financing decision, engage a qualified business valuer or accountant.

Business Valuation Calculator

A business valuation calculator gives you a fast, indicative estimate of what a business might be worth using the earnings multiple method, the most common approach for small and medium businesses in New Zealand. You enter the annual earnings, usually seller discretionary earnings (SDE) for owner operated businesses or EBITDA for larger ones, then choose a multiple that reflects the industry, size, risk and growth of the business, and the tool multiplies the two to produce an estimated value. To reflect real world uncertainty it also shows a sensible range either side of the headline figure, because no single number is ever exact and buyers and sellers usually negotiate within a band. Owners planning an exit, buyers sizing up an acquisition, accountants, brokers and anyone curious about a rough worth all use this method because it is quick, transparent and grounded in the cash a business actually generates. Multiples vary a great deal: stable, low risk businesses with recurring revenue and a strong team command higher multiples, while owner dependent businesses with lumpy earnings sit lower. To use the tool well, normalise your earnings first by adding back one off costs and a fair market salary for the owner, choose a multiple supported by recent comparable sales in your sector, and treat the result as a starting point rather than a formal opinion. A proper valuation also weighs assets, debt, customer concentration, lease terms and growth prospects, so for any real transaction get advice from a qualified business valuer or accountant before you set a price or make an offer.

Annual earnings (SDE or EBITDA) ($)

Earnings multiple

$592,000

Estimated value

Lower estimate$499,500

Upper estimate$684,500

Value = earnings x multiple. Range uses the multiple plus or minus 0.5. Estimate only, not financial or tax advice.

How it works

The headline value multiplies annual earnings by your chosen multiple. The range applies the multiple minus 0.5 for the lower estimate and the multiple plus 0.5 for the upper estimate. This reflects the band buyers and sellers usually negotiate within.

Worked example

With annual earnings of $185,000 and a multiple of 3.2, the estimated value is 185,000 times 3.2, which is $592,000. The lower estimate uses 2.7 for $499,500 and the upper uses 3.7 for $684,500.

Related calculators

EBITDA Margin Calculator: earnings before items.
Gross Profit Calculator: profit on sales.
Net Profit Calculator: bottom line profit.
Free Cash Flow Calculator: cash a business generates.

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