When you value a business, one of the most powerful (and misunderstood) numbers you’ll use is the multiple. Buyers love to talk about “5× EBITDA” or “1× recurring revenue,” but very few stop to ask where that multiple comes from—or whether it’s actually justified.
Get it wrong and you overpay, locking yourself into years of poor returns. Get it right and you gain a defensible, disciplined framework for your deal.
So let’s strip away the myths and look at how to pick the right multiple without guesswork.
What a Multiple Actually Represents
At its core, a multiple is shorthand for risk and quality. A higher multiple means the buyer is confident in the earnings stream, its growth, and its resilience. A lower multiple signals doubt, volatility, or extra work needed to make the business sustainable.
Think of a multiple as the lens that turns earnings into enterprise value. If EBITDA is £200,000, the difference between a 3× and a 5× multiple is £400,000 of valuation. That’s why understanding where the number comes from is so critical.
Factors That Drive Multiples
1. Stability and Growth
Businesses with steady, predictable earnings get higher multiples. If profits are growing year-on-year, confidence rises. If results swing up and down, buyers hedge their bets with a lower multiple.
Example: A consultancy with ten years of gradual growth, no major losses, and a healthy pipeline will justify a higher multiple than an e-commerce store with rollercoaster revenues.
2. Recurring vs One-Off Revenue
Recurring revenue is gold. Contracts, subscriptions, or ongoing service agreements make earnings more predictable. One-off project revenue, by contrast, resets to zero each year.
Example: In the accounting industry, firms are often valued at 0.8×–1.2× recurring revenue. That’s because clients on monthly retainers are much more valuable than ad hoc tax return customers who may or may not come back next year.
3. Margins and Profitability
Stronger margins signal operational efficiency and defensibility. If the business converts revenue into profit consistently, buyers are willing to pay more. Thin or erratic margins reduce confidence and the multiple.
4. Customer Concentration
If 60% of revenue comes from one customer, that’s a red flag. Lose that customer and the business collapses. High customer concentration pushes multiples down. A broad base of clients with no one contributing more than 10% of turnover supports a higher multiple.
5. Management Dependence
Is the business the founder? If all key relationships and knowledge sit in one person’s head, the risk is huge. Multiples drop. If there’s a strong management team and systems in place, the risk reduces, and multiples rise.
6. Industry and Market Conditions
Some sectors naturally attract higher multiples because they’re growing, legislated into relevance, or attractive to private equity. Others languish because of headwinds. Think about software (high multiples) versus retail high street shops (low multiples).
The Dangers of Blindly Copying Multiples
A common mistake is pulling a multiple from a headline or a broker’s pitch and applying it blindly.
Public vs private deals. Public company acquisitions often involve higher multiples than private SME transactions. Comparing the two is misleading.
US vs UK. Multiples in the US are inflated by private equity activity and scale. They don’t translate neatly to the UK.
Turnover bracket. A £20m business and a £2m business may be in the same sector but attract very different multiples because of scale and liquidity.
If you grab a multiple from the wrong context, you’ll overpay.
How to Research Multiples Properly
Traditionally, buyers had to trawl through industry press, announcements, and deal databases to piece together benchmarks. Today, you can accelerate that process using tools like AI.
For example, at OnPoint we often use ChatGPT Teams (locked down for confidentiality) to gather precedent multiples for specific sectors and turnover bands. The AI pulls from deal announcements, KPMG reports, and industry press—saving hours of manual research.
But the AI’s output is just a starting point. You still need to apply judgment. Is your target comparable to those deals? Are the margins similar? Is the growth story aligned? AI can give you the range, but you need to pick the right spot within it.
A Practical Approach
Here’s how we recommend approaching multiples:
Start broad. Find the typical range for your industry. For example, 2×–5× EBITDA.
Assess the fundamentals. Look at the six factors above—stability, revenue type, margins, customer spread, management, and market conditions.
Position the business. Is it a best-in-class example or a struggling outlier? That tells you whether you’re at the top, middle, or bottom of the range.
Sense-check your gut. If you find yourself pushing towards the top because you want the deal, stop. Be honest about whether the fundamentals justify it.
Case Example: The Tempting 5×
A client once came to me with a business showing £250k EBITDA. They wanted to apply a 5× multiple, giving a £1.25m valuation. On paper, it looked reasonable.
But when we dug deeper, profits had swung between £150k and £300k in recent years. One customer accounted for 55% of turnover. And the founder was the only person holding the key contracts.
Those risks didn’t support a 5× multiple. At best, this was a 2×–3× play. The real valuation was £500k–£750k, not £1.25m. Without that discipline, the buyer would have paid almost double.
The Role of Emotion
Multiples are one of the easiest places for emotion to creep in. You see growth potential, synergies, or cross-sell opportunities and convince yourself the business deserves the top end. Maybe it does—but maybe you’re bending reality to make the deal work.
That’s why having an independent, neutral valuation helps. It forces you to stick to the fundamentals and stops you drifting into optimism. At OnPoint, our reports clearly explain why we’ve placed a multiple where we have, so you know the reasoning is grounded.
The Bottom Line
Picking the right multiple isn’t about guesswork, headlines, or broker promises. It’s about:
Understanding what drives multiples in your industry.
Assessing the fundamentals of the specific business.
Positioning it within a realistic range.
Applying discipline so emotion doesn’t inflate your price.
When you do this, you don’t just get a number—you get confidence. You can sit across the table from a seller knowing exactly why your offer is fair and defensible.
Call to Action
At OnPoint Accounting, we specialise in valuations that cut through the noise. Our reports combine financial analysis, sector benchmarking, and grounded judgment to give you the right multiple for your deal.
👉 If you’re buying a business and want to know which multiple actually fits, contact OnPoint Accounting today. We’ll help you value with clarity, not guesswork.
Please seek professional advice and guidance when considering implementing the content of this blog, and always advise the seller to seek independent advice.
To learn more about the financial due diligence process in buying a business, why not purchase the book “Buying a Business The Smart Way” By Johann Goree: https://amzn.eu/d/0anwcVBk
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