It’s a common question among Australian business owners:

"Our business looks very similar to theirs, so why did they sell for so much more?"

In many cases, the answer comes down to business valuation multiples.

Valuation multiples are one of the most common tools used to value a business in Australia. They reflect how the market views a business’s risk, earnings quality, and future potential. When used properly, they provide clarity. When misunderstood, they often lead to unrealistic expectations.

This article explains how business valuation multiples work, what drives them in the Australian SME market, and how to apply them when planning a sale, investment, or strategic decision.

What Is a Business Valuation Multiple?

A business valuation multiple compares a measure of value with a measure of financial performance.

Common valuation multiples used in Australia include:

• EV / EBITDA – commonly used for SME and mid-market transactions

• Price / Earnings (P/E) – focused on equity value after tax

• Revenue multiples – typically used where profits are still developing

A valuation multiple is not fixed. It reflects:

• How sustainable earnings are

• How predictable cash flow is

• How dependent the business is on the owner

• How confident a buyer is in future performance

For example, two service businesses in Brisbane each make $1.5 million in revenue.

• One relies heavily on the owner and has inconsistent reporting.

• The other has a management structure, stable margins, and recurring contracts.

Despite similar revenue, the second business is far more likely to achieve a higher valuation multiple.

Business Valuation Multiples in Australia: What Drives Them?

Business size and profitability

In the Australian SME market, scale and earnings quality are the most consistent drivers of valuation multiples.

Small businesses usually have lower multiples than larger, more organised ones. This is because bigger businesses manage risks better. With SMEs generally somewhere in between.

Higher-quality earnings, stable margins, strong cash flow, and clear financials usually lead to higher multiples.

How Economic Conditions Affect Valuation Multiples

Broader economic conditions influence business valuation multiples in Australia.

• Rising interest rates increase the cost of capital and can compress multiples

• Inflation pressures margins where pricing power is weak

• Economic uncertainty increases buyer focus on downside risk

In the current environment, buyers are prioritising:

• Predictable cash flow

• Strong working capital management

• Clear, defensible earnings

Industry-Specific Valuation Multiples

Different industries attract different valuation multiples, even at similar sizes.

• Software and digital businesses: higher multiples due to scalability and recurring revenue

• Professional services: stronger multiples when revenue is contracted and not owner-dependent

• Manufacturing and wholesale: valued on margin stability and capital intensity

• Retail and hospitality: sensitive to margin pressure, inventory control, and demand volatility

Knowing how buyers value your industry is key to figuring out a realistic multiple.

How to Improve Your Business Valuation Multiple

From our work with Australian SME owners, here are the best ways to boost valuation multiples:

• Improving earnings quality, not just revenue growth

• Reducing customer concentration

• Introducing recurring or contracted revenue

• Maintaining accurate, timely financial reporting

• Improving cash flow and working capital control

Even modest improvements in these areas can materially increase business value.

Why Context Matters More Than the Multiple Itself

A common mistake is applying headline multiples without context.

For example:

• Comparing public company multiples to private SMEs

• Using peak-year profits instead of normalised earnings

• Confusing enterprise value with equity value

A defensible business valuation aligns:

• The right multiple

• The right earnings base

• The right peer group

This discipline is critical during negotiations and due diligence.

Independent Business Valuations with RJD Advisory

At RJD Advisory, we specialise in independent business valuations for Australian small and medium-sized businesses.

We help business owners:

• Understand what multiple the market is likely to apply

• Identify practical ways to improve business value

• Prepare clean, defensible financials

• Make informed decisions with confidence

Our independence means our valuations are objective, evidence-based, and trusted by owners, buyers, advisors, and regulators.

Final Thoughts

Business valuation multiples explain why two similar businesses can achieve very different outcomes.

They reflect confidence, risk, and earnings quality, not just revenue or profit.

If you want clarity on what your business is worth today, and what would improve that value in the future, an independent valuation is the right place to start.

📞 Book a free consultation today to discuss your business valuation and next steps.