Why Profit Alone Doesn’t Tell the Whole Story and What Buyers Actually Look For
When it comes to business valuation, most owners are taught there’s a scientific formula that spits out a clean, definitive number. But the truth? Valuation is equal parts math, psychology, and market timing, and if you focus too much on your profit figure, you might be missing the factors that really shape your sale price.
In this YouTube video, Xcllusive Principal Zoran Sarabaca breaks down the three critical components of valuation: profit, risk, and market conditions. Here’s how it really works in practice.
1. Profit Is the Starting Point, Not the Final Answer
The most common method buyers use is the Profit Multiplier Formula:
Business Value = Adjusted EBITDA × Industry Multiplier
Let’s break that down:
- EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) gets adjusted to remove one-off costs and normalise profits.
- Industry Multipliers range from 3× to 10× for most small to mid-sized Australian businesses.
Example:
If your adjusted EBITDA is $500,000 and the market applies a 4× multiple, your business is theoretically worth $2 million. But here’s the kicker: that multiplier isn’t set in stone. It depends heavily on how risky your business appears to buyers.
2. Risk Assessment Can Make or Break Your Valuation
Two identical businesses can have wildly different sale prices if one screams “safe investment” and the other looks like a minefield.
Key factors that buyers evaluate:
- Customer concentration (do a few clients drive most of your revenue?)
- Owner dependency (can it run without you?)
- Seasonality and revenue stability
- Industry disruption risk
- Regulatory or compliance hurdles
A business with $1M EBITDA might only sell for $3M if the risks are high, but a similar one could sell for $6M if it’s streamlined, diversified, and future-proofed.
Buyers don’t just crunch numbers; they imagine themselves running your business. If it feels like stepping into chaos, they’ll walk. If it looks like a turn-key machine, they’ll pay more.
3. Market Conditions Always Have the Final Say
Even the best-run business can take a valuation hit if it’s the wrong time to sell.
In high-growth sectors like IT, cybersecurity, or AI, valuation multiples spike during booms; 8× to 12× EBITDA isn’t unusual. But in downturns or saturated markets, those same businesses might only fetch 4× to 6×.
Timing matters. Your window of opportunity could close fast if:
- Tech innovation outpaces your offering
- Regulatory changes affect your industry
- Buyer appetite shifts toward stable, cash-flow-positive businesses
Knowing your sector’s current trends helps you plan strategically and potentially earn far more than the spreadsheet says you should.
The Key Takeaway
The biggest mistake sellers make is obsessing over profit and ignoring risk. You’re not just selling a number, you’re selling confidence. Understanding how buyers actually think (and what they fear) lets you prep your business for a smoother, more lucrative exit.
Watch the Full Breakdown
Watch the video on Business Valuation Formula: Explained
Need a Professional Valuation?
At Xcllusive Business Brokers, our team doesn’t just understand the theory; we’re on the ground selling businesses every week. We translate market realities into accurate, defendable valuation reports that hold up in negotiations, legal matters, and tax situations.
Call us on 1800 825 831 or book your valuation here.
Don’t guess. Know your number — and the story behind it.