How is a business actually valued before a sale?

If you are working out how to price your business for sale, start here: for most privately held Australian businesses, valuation is not a formula. It is a multiple applied to a normalised earnings figure, then argued over.

Your accountant gives you a number. The contract decides what you actually receive. Those are two different things, and the gap between them is where most sellers lose money.

I have seen two businesses sell for the same headline figure and one owner bank close to twice what the other did. Same sector, similar earnings, very different documents.

So before you ask what your business is worth, understand what the number is made of.

How do buyers value a business?

Three methods do the heavy lifting.

Earnings multiple. The most common. The buyer takes EBITDA, or PEBITDA where the owner works in the business and their own wage is added back, then applies a multiple. Size drives that multiple more than industry does. Brokers and valuers commonly report businesses under about $1 million of normalised earnings landing at two to four times, and $1 million to $5 million at roughly three and a half to six times.

Treat those ranges as orientation only. There is no public database of Australian SME transactions, so every published range is observation, not evidence. The US charts founders find online sit higher again: deeper buyer pool, cheaper debt. Do not price off them.

Asset based. For capital heavy businesses, or where earnings are thin. Value plant, stock, receivables and goodwill, less liabilities.

Revenue multiple. Mostly SaaS and subscription, where ARR and churn matter more than this year's profit.

Normalising the earnings

Normalising is where the arguments start. You add back your above-market wage, related-party rent, the family car, the one-off spend on that dispute, and strip out revenue that will not repeat. Every add-back you claim, a buyer's adviser will test.

Why the legal read matters as much as the accountant's

An accountant tells you what the business earned. A lawyer tells you whether that earnings figure survives a change of ownership. The second question is what the buyer is pricing.

Contracted revenue versus assumed revenue

Your top five customers might be 60 per cent of revenue. If those relationships sit on handshake arrangements, rolling purchase orders, or contracts with no assignment right, the buyer cannot be confident they transfer. Revenue that cannot transfer gets discounted, or carved into an earnout.

Change of control and consents

Customer agreements, supplier terms, your lease, software licences, finance documents. Each one may require consent to the sale, or hand the other side a termination right. Every consent you need is leverage for someone else.

Who owns the IP

If code, designs, brand assets or processes were built by contractors with no written assignment, or by a founder before the company existed, the company may not own what it is selling. This is the most common issue I see in technology and creative businesses. Found early it is a few weeks of work. Found in due diligence it is a price adjustment.

Key person risk and restraints

If the business is you, the buyer prices that. Restraints are also mid-reform. Draft legislation released in September 2026 would make employee non-competes unenforceable below the Fair Work high income threshold, $190,100 this year, from 2027. It is not law yet, and it is not proposed to cover restraints on a sale of business, so the restraint you give the buyer holds. The employee non-competes a buyer is counting on for your key staff may not. Expect more weight on confidentiality, non-solicitation and retention terms.

Employment exposure

Accrued leave, contractor classification, award coverage, historical underpayments. Since January 2025 intentional underpayment has been a criminal offence, not just a civil number, so buyers look harder at payroll. What they find comes off the price or sits behind an indemnity.

None of these change your profit and loss. All of them change the multiple.

How to price my business for sale: headline versus banked

The figure you agree is rarely the figure you receive. Structure does that work.

Earnouts

Part of the price deferred and tied to performance after completion. The mechanics matter more than the percentage: who runs the business during the period, how the metric is defined, and what happens when the buyer changes the cost base or books revenue through its own entity. A loose earnout is a price cut with extra steps.

Warranties and indemnities

You promise the business is as described. If it is not, money comes back. Your liability cap, time limits, disclosure schedule and any retention held back against claims are price terms, not boilerplate.

Working capital adjustment

Cash free, debt free deals are trued up at completion against a target. Set that target carelessly and you hand back six figures on the day.

Share sale or asset sale

The small business CGT concessions in Division 152 are gated on aggregated turnover under $2 million or net assets of $6 million or less, and a share sale carries extra hurdles: the shares have to be active assets under the 80 per cent test, and the concession stakeholder conditions met. On an asset sale the proceeds land in the company, which gets no 50 per cent CGT discount, and moving cash out to shareholders is a second step with its own tax cost. Same headline price, very different after-tax outcomes. Have your accountant model both.

The shareholder waterfall

This one catches founders. If you have raised on SAFEs, convertible notes or preference shares, or you run an ESOP, proceeds do not split by ordinary share count. I have worked on deals where the headline price looked strong and one shareholder's return was modest once the waterfall ran. Model it to a dollar figure before you sign a term sheet.

What to sort before you go looking for a number

1. Three years of clean, reconciled financials, with add-backs documented and defensible.

2. A contract register covering every customer, supplier, lease and licence, with the assignment and change of control position noted.

3. Written agreements with your top customers, on terms that transfer.

4. IP assignments from every founder, employee and contractor who has touched the product.

5. An employment file review. Classifications, awards, leave balances, restraints.

6. Your cap table and waterfall modelled to a dollar figure per shareholder.

7. Corporate housekeeping. ASIC records current, share register accurate, minutes for anything material.

Do this six to twelve months out and you are not fixing problems on a buyer's timetable. That timing beats any negotiating tactic.

The short version

Valuation is a starting position. Price is what the documents let you keep.

Get a valuation from someone who values businesses in your sector. Then have a lawyer read the same numbers for transferability, ownership and liability. Together they give you a figure you can hold under pressure.

If a sale is on the table, our piece on what needs to be sorted before you go to market covers the process: timing, due diligence, and what most often kills a deal.

Common questions

What multiple will my business sell for?

Mostly a function of size. Brokers and valuers commonly report two to four times normalised earnings for businesses under about $1 million, and roughly three and a half to six times between $1 million and $5 million. Nobody publishes Australian SME transaction data, so read those as a guide rather than a benchmark, and ignore US charts, which run higher.

What should I look for in an earnout?

The mechanics, more than the percentage deferred. Check who runs the business during the earnout period, how the metric is defined, and what happens if the buyer changes the cost base or books revenue through its own entity. Leave those loose and you have accepted a lower price without saying so.

Should I sell the shares or the assets?

Have your accountant model both before you agree a structure. Access to the small business CGT concessions turns on the Division 152 conditions, and a share sale adds the active asset and concession stakeholder hurdles. On an asset sale the company receives the proceeds without the 50 per cent CGT discount, and getting that cash to shareholders is a further step with its own tax cost.

Will the proposed non-compete ban affect the restraint I give the buyer?

On the draft as released, no. The proposed ban targets employee non-competes below the high income threshold and is not proposed to cover restraints on a sale of business. The restraints your key staff are under are a different matter, so a buyer may lean harder on confidentiality and retention arrangements.

How early should I start preparing for a sale?

Six to twelve months before you go to market. That gives you time to fix contracts, IP ownership and payroll on your own schedule, rather than under a buyer's due diligence timetable.

If you want a read on where you sit, book a 30 minute call, and we'll tell you whether we can help before you've spent anything.

General information only, not advice for your circumstances.