Headline multiples make for good LinkedIn posts and bad valuations. In reality the multiple is an output, not an input. It's the price a buyer is willing to pay after they've looked at the eight things below.
1. Recurring vs. project revenue
Contracted, recurring revenue is worth more than project revenue, and project revenue is worth more than transactional revenue. Quantify the split and improve it before you go to market.
2. Customer concentration
Any single customer above 20% of revenue is a discount point. Above 40% and some buyers walk away. Diversify deliberately in the two years before exit.
3. Management depth
If the business stops working when you go on holiday, it's worth materially less. A capable second tier is the single highest-ROI value-building lever for most owner-managed businesses.
4. Margin quality
A 20% EBITDA margin is worth more than a 12% margin at the same revenue. obvious in theory, ignored in practice. Margin trend over three years matters almost as much as the absolute level.
5. Growth trajectory
Buyers price the next three years, not the last three. A credible growth plan backed by signed customer commitments routinely adds 1–2 turns to the multiple.
6. Working capital discipline
Aged debtors, slow stock turn and over-extended supplier terms quietly destroy enterprise value. The cash-conversion cycle is the first thing a serious buyer will model.
7. Defensibility
Switching costs, IP, regulatory licences, long-term contracts, brand. The harder it is for a competitor to replicate the business, the closer to the top of the multiple range you sit.
8. Clean financials
Audited or independently reviewed numbers, monthly management accounts, documented add-backs. Buyers pay a premium for certainty and discount for ambiguity. Tidy paperwork pays for itself many times over.