Glossary
Multiple
The number you multiply earnings by to get what a business is worth.
Multiple: what it means in practice
A business earning $200,000 sold at a 3x multiple is worth $600,000. Multiples vary by industry, size, growth rate and how dependent the business is on its owner.
The practical consequence is that improving profit improves value several times over. Cutting $50,000 of costs in a 3x business adds $150,000 to what it sells for.
What moves it, roughly in order: owner dependence, revenue predictability, customer concentration and growth. The same $200,000 of earnings can be worth $400,000 with the owner inside every process and $800,000 with a manager running it - and hiring that manager usually costs far less than the $400,000 of value the change creates.
Check which earnings figure is under discussion before agreeing to anything. Owner-operated businesses are quoted on SDE; above roughly a million of profit the market switches to EBITDA, which is calculated after paying someone to do the owner's job. A 3x on SDE and a 3x on EBITDA describe two very different prices for the same company.