Insights · Advisory · 31 October 2026

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How to value a small business: the three methods that matter

Whether you are selling, bringing in a partner, splitting with a co-owner or just want to know what you have built, the value of a small business comes down to one question: what will a buyer pay for the profit it reliably makes?

1. Earnings multiple

The most common method for small and medium businesses. Take the maintainable earnings (profit adjusted for owner wages at market rates, one-off costs and private expenses) and multiply by a factor that reflects risk. A business that depends on the owner, has a few big customers or patchy records attracts a lower multiple. There is no standard multiple; it depends on the industry, size and risk.

2. Asset-based

Adds up what the assets are worth, less liabilities. It sets a floor for asset-heavy businesses such as transport, equipment hire or manufacturing, and is used when profits are low.

3. Discounted cash flow

Forecasts future cash flows and discounts them back to today. Useful for growing businesses with good forecasts, but very sensitive to the assumptions.

What buyers actually check

• Clean, consistent financials for at least the last two or three years.
• Whether earnings survive without you.
• Customer concentration, contracts and recurring revenue.
• Working capital needs: see working capital explained.
• Tax and ATO compliance: a buyer will find any problems.

Lift the value before you sell

Start two to three years out: tidy the books, document processes, reduce reliance on yourself and know your numbers monthly. Small business CGT concessions may reduce tax on the sale: small business tax concessions. Our fractional CFO service can get you sale ready.

Quick answers

What is the most common way to value a small business?

A multiple of maintainable earnings, adjusted for owner wages and one-off items. The multiple reflects risk and varies by industry.

How early should I prepare a business for sale?

Ideally two to three years ahead, so the financials and systems show reliable earnings that do not depend on you.

Related reading: Exit planning

Sources

• business.gov.au: Value your business
• ATO: Small business CGT concessions

General information only. This article does not take into account your circumstances and is not tax, legal or financial advice. Rates and rules change; check the sources above and get advice for your business before acting.