EBITDA Multiples & Enterprise Value: Guide to Estimating Small Business Valuation

Business Valuation Methodologies Valuing a small business is a blend of art and science. While there are several paths (asset-based, discounted cash flows), the most common transactional standard is the **EBITDA Multiple Method**.

Understanding EBITDA Multiples Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a clean measure of operating profit. Multiples are typically determined by: * **Micro-businesses (<$500k EBITDA)**: 2.0x to 4.0x EBITDA. * **Mid-sized businesses ($500k-$2M EBITDA)**: 4.0x to 6.5x EBITDA. * **Larger enterprises ($2M-$10M EBITDA)**: 6.5x to 9.0x+ EBITDA.

Enterprise vs. Equity Value * **Enterprise Value (EV)**: Represents the operating value of the business, regardless of capital structure (Debt or Cash). * **Equity Value**: Represents the actual net payout received by the shareholders. To calculate this, add liquid cash and subtract interest-bearing debts from the Enterprise Value.