Turning a vague guess into a genuine, defensible number
“What's my business actually worth?”
There's no single formula that answers this for every business — but there are established methods, and understanding them turns a vague guess into a genuine, defensible number.
The short answer
Small businesses are typically valued using one of a small number of established methods — most commonly an earnings-based approach, sometimes cross-checked against the value of net assets. The right method depends on your business type, and the resulting figure depends heavily on factors you can genuinely influence well before you ever plan to sell.
The main valuation methods
| Method | How it works | Best suited to |
|---|---|---|
| Capitalised future earnings | Estimates sustainable future profit, then applies a multiple reflecting risk and stability | Established businesses with consistent, predictable earnings |
| Earnings multiple (EBIT/EBITDA) | Applies a multiple to normalised profit, calibrated to genuinely comparable businesses and transactions in your specific industry — there's no reliable universal Australian SME range, since appropriate multiples vary enormously by industry, size, growth and risk | Comparing against similar businesses that have sold, useful as a benchmark or sense-check when genuinely comparable data is available |
| Net asset value | Values tangible assets minus liabilities, without factoring in goodwill | Asset-heavy businesses, or underperforming businesses with limited goodwill |
Why goodwill is often the most contested part of the number
Goodwill is the value of a business beyond its physical assets — its reputation, customer relationships, systems, and ongoing earning capacity. For many small businesses, particularly service-based ones, goodwill represents a genuinely significant share of the total value, but it's also the most subjective part to agree on, since two businesses that look similar on paper can carry very different goodwill depending on customer loyalty, brand strength, and how well-documented the business's systems actually are.
The factors that genuinely move the number
Owner dependency. A business that runs well without the owner's constant personal involvement is worth more than one where the owner is the business — buyers pay a premium for genuine transferability.
Earnings quality and consistency. Stable, predictable, well-documented earnings support a higher multiple than volatile or poorly recorded ones.
Customer concentration. Heavy reliance on one or two customers — covered in its own guide — is one of the first things a buyer flags as a risk, and it typically reduces the multiple a buyer is willing to pay.
Recurring revenue. Predictable, ongoing income (subscriptions, contracts, repeat business) is generally valued more highly than one-off, unpredictable sales.
Clean, well-organised financial records. Makes the numbers easier to verify and trust, reducing perceived risk — and risk reduction directly supports a higher valuation.
A simple example
As a purely hypothetical illustration of how the method works, not a benchmark figure: a consulting business generates $180,000 in normalised annual profit, after adjusting for the owner's market-rate salary and removing one-off items. If a genuinely comparable multiple for that specific business and industry were, say, 3x — a figure that would need to come from real comparable transactions, not an assumed industry-wide range — that would suggest a value in the order of $540,000. The final figure would move up or down based on the specific factors below, particularly how dependent the business's relationships are on the current owner personally, and the multiple itself should always be sourced from genuinely comparable data for that business and industry, not a generic assumption.
Why building value starts long before you plan to sell
The factors that increase a business's value — reduced owner dependency, documented systems, diversified customers, clean records — take genuine time to build. A business actively built with these factors in mind over several years is typically worth meaningfully more, relative to its profit, than an identical business that's neglected them. This is exactly why succession and exit planning, covered in its own guide, is most effective when it starts years before an actual sale, not in the final months.
A quick self-check
Do I know roughly which valuation method would apply to my type of business?
How dependent is my business's success on me personally, versus its systems and team?
Are my financial records clean and well-organised enough to support a valuation confidently?
If I were selling today, what would a buyer flag as the biggest risk in my business?
When should you get professional help?
you want a proper, defensible valuation prepared — for a sale, a partnership, or your own planning purposes;
you're not sure which valuation method genuinely fits your business type;
you want to understand what specific steps would increase your business's value before you sell; or
you're negotiating a sale or partnership and want an independent valuation to inform the discussion.
Continue learning
→ What Tax and CGT Issues Should I Think About Before Selling My Business?
→ How Do I Prepare My Business for Sale or Succession Years Before I Want to Leave?
→ My Business Depends Heavily on One Customer — How Risky Is That?
SKC Accounting | Knowledge Centre | Knowledge Guide 098
Last reviewed: August 2026
General information only. This guide does not take into account your individual circumstances and is not a substitute for professional accounting, taxation, legal or financial advice.