An EBITDA multiple is the number by which a buyer multiplies normalized EBITDA to arrive at enterprise value, the single most consequential variable in determining what a business is worth in a transaction.
If normalized EBITDA is $1.5 million and the applicable multiple is 5x, enterprise value is $7.5 million. If the multiple is 7x, it is $10.5 million. The three-million-dollar difference between those two outcomes is not explained by earnings. It is explained entirely by how buyers perceive the quality, risk, and growth potential of those earnings.
Multiples vary by industry, size, growth trajectory, and the specific characteristics of the business. Within any given industry range, the businesses that land at the top of the range share consistent characteristics: strong recurring revenue, management depth, diversified customers, documented systems, and low owner dependence. Those at the bottom share the opposite. The multiple is not assigned. It is earned, through deliberate choices made years before the transaction.
See also: Business Valuation · Enterprise Value · Normalized, Adjusted, or Recast EBITDAThe multiple a business commandsis the outcome of every value-building decision made in the years before a sale. See how Wefinx approaches value growth.