Let’s be real — business valuation sounds way sexier on paper than it feels in real life. Whether you’re a buyer sizing up an opportunity or a seller trying to figure out what your life’s work is actually worth, you’ll run into one term over and over again: EBITDA. And almost always, it’s followed by a “multiple.”

It gets thrown around in meetings and investment decks like everyone’s born knowing what it means. But if you’ve ever paused mid-conversation and quietly Googled “how to calculate ebitda multiple”, you’re not alone. This article is for you.

Because once you understand how EBITDA multiples actually work — and how much they matter — you start to see the real story behind a price tag.

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Let’s Start Simple: What Even Is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. Yeah, it’s a mouthful. But at its core, EBITDA is just a cleaner way of looking at a company’s operating performance — without the distractions of debt, tax strategy, or non-cash expenses.

Think of it as a neutral measure of how profitable a company is from its core operations. It gives buyers a sense of what kind of cash flow they can expect from the business once they’re in the driver’s seat.

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Okay, So What’s the Deal With Multiples?

Here’s where things get interesting. The ebitda multiplier is the number buyers apply to a business’s EBITDA to come up with a valuation.

Simple math:
Business Value = EBITDA × Multiplier

Let’s say a company generates $500,000 in EBITDA. A buyer offers a 4x multiple. That means the business is valued at $2 million.

But — and this is a big but — that multiple doesn’t just appear out of thin air. It’s shaped by a bunch of factors, like industry trends, growth potential, recurring revenue, customer base, competitive moat, and how dependent the business is on its current owner.

So while the math is straightforward, the logic behind the multiple is anything but.

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How to Know What Multiple You’re Dealing With

Now, if you’re on the buying side, you might be wondering, how to calculate ebitda multiple when the seller’s asking price is all you’ve got.

Here’s a quick way:
EBITDA Multiple = Asking Price / EBITDA

If a business is listed for $1.5 million and it’s generating $300,000 in EBITDA, you’re looking at a 5x multiple.

Knowing that number helps you determine if the deal is reasonable — or if it’s inflated beyond belief. It also gives you a common ground to negotiate. After all, EBITDA multiples are often where negotiations start, not where they end.

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So… What’s a “Good” EBITDA Multiple?

Now for the million-dollar question — literally. What is a good ebitda multiple for acquisition?

The truth? It depends.

A “good” multiple in one industry might be a total rip-off in another. Here’s a rough breakdown to give you some context:

• 2x–3x: Typical for small, owner-dependent service businesses (think local landscaping, repair shops).
  
• 4x–6x: More common in businesses with recurring revenue, solid management teams, and moderate growth potential.
  
• 6x–10x+: Usually reserved for high-growth, scalable companies — especially in SaaS, tech, or healthcare — with low churn and strong market positioning.
  

But don’t take those numbers as gospel. Think of them as context. Multiples are highly influenced by things like location, risk, and even buyer sentiment at the time of sale.

If you’re a seller, your job is to earn a higher multiple — by de-risking your business, organizing your books, and proving your growth is sustainable. If you’re a buyer, your job is to question everything behind that number.

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Not All EBITDA Is Created Equal

Another point that often gets missed? Adjusted EBITDA.

In small businesses, it’s common to “add back” expenses that won’t apply to a new owner — like personal car leases, one-off legal fees, or a bloated salary. That gives you adjusted EBITDA, which can often be higher (and more representative) than what shows on tax returns.

But it also opens the door for creative accounting. That’s why due diligence exists. Dig into those adjustments. Make sure they’re legit. Because inflated EBITDA means an inflated multiple, and that’s a fast track to overpaying.

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Why Sellers Should Care (A Lot)

If you’re selling, your multiple is more than just a number — it’s a reflection of how the market sees your business. Do buyers trust your financials? Is your team reliable without you? Is your revenue predictable, or is every month a new fire drill?

The cleaner and more scalable your business looks, the better your multiple. Period.

So before you list, invest in getting your books in order. Document your systems. Strengthen your team. Show buyers that what you’ve built doesn’t fall apart the moment you step away.

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Final Thoughts: Multiples Are the Tip of the Iceberg

If you walk away with anything, let it be this: EBITDA multiples matter, but they’re only as good as the story behind them. Numbers are easy to toss around — what matters is whether they reflect a stable, growing, and transferable business.