Every owner knows the shorthand: businesses like yours sell for some multiple of EBITDA. Five times, six times — the number floats around industry conferences and golf courses, and it’s not wrong, exactly. It’s just the last step of the process presented as the whole process, the way “houses sell for price per square foot” is technically true and completely useless for pricing your specific house.
What actually happens when a buyer, a lender, or a valuation professional prices a middle-market company is a chain of questions, and the multiple is merely where the chain ends. Understanding the chain matters, because every link is a place where value is won or lost — usually years before anyone runs the math.
The first question isn’t the multiple. It’s the number underneath it.
Before anyone argues about five times versus six times, they argue about five times what. Reported EBITDA is the starting point, never the endpoint. It gets adjusted — owner compensation restated to market, personal expenses removed, one-time items stripped out, revenue timing corrected — until what remains is the earnings a new owner could actually count on. That process is the quality of earnings analysis, and the one-sentence version is: in the engagements we run, the adjusted number routinely differs from the reported number by ten or twenty percent, and every dollar of difference carries the full multiple with it. A dispute about the multiple moves value by half-turns. A dispute about the EBITDA underneath it moves value by whole ones.
The multiple is a scorecard, not a market rate
Here’s the reframe that changes how owners think about value: the multiple isn’t a price the market charges. It’s a grade the market assigns — a compressed judgment about risk and durability. Two companies in the same industry with identical adjusted EBITDA can trade two full turns apart, and the gap is never arbitrary. It’s the market’s answer to a handful of questions: How concentrated are the customers? How much revenue is contractual versus re-won every year? Does the business run without the owner? Are margins stable or lumpy? Is the industry growing or consolidating? Is the management team staying? Clean answers compound into a premium grade; messy ones compound into a discount. Walk through the specific drivers and the striking thing is how many of them are within the owner’s control — given enough runway.
The multiple isn’t what the market charges. It’s the grade the market assigns.
The other methods — and when they take over
Multiples of earnings dominate because most middle-market companies are bought for their cash flow, but two other lenses matter, and in certain situations one of them governs. A discounted cash flow analysis — projecting the company’s future cash and discounting it back at a rate reflecting its risk — is the theoretically pure method, and it governs when the future won’t look like the past: high growth, a turnaround, a major contract starting or ending. In practice, DCF and multiples are checked against each other, and a big gap between them is itself a finding. The asset approach — what the underlying assets would fetch — sets the floor, and it matters most for asset-heavy businesses or, bluntly, for companies whose earnings don’t justify more than their equipment is worth. If your business appraises near its asset value, the valuation is telling you the earnings engine isn’t creating value beyond the machinery — which is a finding about strategy as much as about value.
There’s one more layer sellers consistently underestimate: value to whom. A financial buyer prices your standalone cash flows. A strategic buyer — a competitor, a customer, a company entering your market — prices your cash flows plus what you’re worth combined with theirs: your customer list on their cost structure, your geography added to their footprint. That’s why the highest bid often comes from the buyer for whom your business solves a problem, and why running a process that finds those buyers is frequently worth more than any amount of multiple negotiation.
The practical takeaway is sequencing. The multiple gets set in a few weeks of negotiation, but everything it grades — the concentration, the contracts, the owner-dependence, the quality of the numbers — gets set in the years before. Owners who want a premium valuation in three years are, right now, either building the case for one or quietly building the case against it.
Chief Perspective’s Business Valuation practice gives middle-market owners the examined number — for transactions and for planning. If you need to know what your business is worth — or want to change the answer — let’s talk.
Common questions
What’s a typical multiple for my industry?
Ranges exist and we’re happy to discuss them, but published averages blend premium-grade and discount-grade companies into one misleading number. Where you sit inside the range matters more than the range.
Is a formal valuation different from what a buyer would pay?
A valuation estimates fair market value under defined standards; a live deal discovers what specific buyers will pay on a specific day. They usually rhyme. Strategic buyers and competitive processes are the main reasons they diverge — upward.
How often should I get the business valued?
For planning purposes, every two or three years, or after anything material — a big contract, a partner buyout, a major capital investment. Owners managing toward an exit often treat the valuation as an annual scorecard.