EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is the standard metric used to value profitable businesses. Here’s how to understand and apply it.

What is an EBITDA Multiple?

Simply put: Business Value = EBITDA × Multiple

If your business generates £500,000 in EBITDA and sells at a 5x multiple, it’s worth approximately £2.5 million.

Typical EBITDA Multiples by Industry (UK 2024)

– Technology/Software: 5-10x – Healthcare: 6-9x – Professional Services: 4-7x – Manufacturing: 4-6x – Retail: 3-5x – Hospitality: 3-5x

Factors That Increase Your Multiple

1.

Recurring Revenue

: Subscription or contract-based income is valued higher 2.

Growth Rate

: Faster growth = higher multiple 3.

Market Position

: Market leaders command premiums 4.

Customer Diversification

: No single customer >15% of revenue 5.

Strong Management

: Team that operates without the owner 6.

Clean Financials

: Audited accounts, clear reporting

Common Mistakes

– Adding back too many “one-time” expenses – Not accounting for market wages for owners – Ignoring working capital requirements