EBITDA and business value: how a single figure becomes a purchase price

Anyone buying or selling a business hears the same sentence sooner or later: "It's valued at EBITDA times a multiple." It sounds like a formula. In reality both halves rest on assumptions you can, and should, negotiate. This article explains what sits behind the figure and how it turns into a purchase price.

Key points

• EBITDA is earnings before interest, taxes, depreciation and amortisation. It shows what the day-to-day business generates, regardless of how it is financed.
• Valuations use adjusted EBITDA: without one-off items and with a market-rate salary for the managing director.
• According to the DUB SME multiples (Q3/2026), German businesses with less than €5 million in revenue sell for roughly 2.5 to 7.6 times EBITDA, depending on the sector.
• EBITDA times the multiple gives the enterprise value. The price for the shares only emerges once debt is deducted and surplus cash is added.
• In the end, what decides is not the table but whether the business can carry the financing.

What EBITDA actually measures

EBITDA stands for earnings before interest, taxes, depreciation and amortisation. You take profit and add back interest, taxes and depreciation. What remains is what the operating business earns.

Why this figure in particular? Because it makes businesses comparable. Interest depends on how the current owner chose to finance. Taxes depend on the legal form. Depreciation depends on when the last investments were made. All of that changes with a new owner. EBITDA does not.

The catch: depreciation is not just an accounting entry. Behind it are machines, vehicles and buildings that will need replacing. A business with strong EBITDA and an ageing machine park looks better on paper than it is. That is why experienced buyers also look at EBIT, the result after depreciation, and at any investment backlog.

Adjusting: where valuations tip

The EBITDA in the annual accounts is rarely the number that gets used. In owner-managed businesses especially, a lot of personal choices are baked in. What gets valued is adjusted EBITDA: the result a new owner can realistically expect. The most common adjustments:

• Owner's salary: if the owner pays herself less than a hired managing director would cost, the difference is deducted. In sole traders and partnerships the owner's pay often doesn't appear at all, so a notional owner's salary is applied.
• One-off items: a lawsuit, water damage, a large order that won't come back. These are taken out, in either direction.
• Private costs: the family car, relatives on the payroll on special terms, travel. Anything that disappears or costs something different after the handover.
• Rent: if the owner privately owns the premises and the business pays little or nothing, a market rent is applied.
• Several years: valuations usually use an average of the last three years or a weighted figure, not the best year.

For owners this is often the most uncomfortable part. The profit they are proud of shrinks on paper. For successors it is the most important part, because this is where it becomes clear whether the price fits the business.

Which multiples apply right now

The multiple tells you how many times EBITDA a buyer is willing to pay. A publicly available benchmark for Germany is the DUB SME multiples, a quarterly assessment by M&A advisers. For micro caps with less than €5 million in revenue, which covers most businesses with 5 to 100 employees, the Q3/2026 edition (accessed 14 October 2026) gives these EBITDA ranges, among others. Across all 20 sectors, the range in this size class runs from 2.5 (consumer goods) to 7.6 (software and medical technology):

• Mechanical and plant engineering: 3.6 to 5.1
• Metalworking and production engineering: 3.4 to 4.2
• Construction and building trades: 3.7 to 5.0
• Business services (B2B): 3.8 to 5.7
• IT services and system integrators: 5.2 to 6.7
• Transport, logistics and freight forwarding: 3.7 to 5.0
• Consumer goods (non-food): 2.5 to 4.0

Two things stand out. First, size matters. The same sector is valued noticeably higher at €5 to 50 million in revenue, in mechanical engineering at 4.6 to 6.0. Smaller businesses depend more on individual people and customers, and that costs value. Second, these are ranges, not prices. Where a business lands depends on how reliant it is on the owner, how spread out its customers are, how stable the team is and how much investment is due.

DUB says as much itself: the ranges describe where most businesses in a sector sit, and prices outside them are possible in justified cases. It names owner dependence, customer concentration, distinctive strengths and growth potential among the factors. It also makes clear that enterprise value is not the same as equity value (DUB SME multiples, notes below the table).

Worked example: from EBITDA to purchase price

A fictional engineering business with 25 employees and €3 million in revenue. All figures are made up for illustration only.

A second look is a useful sense check: an enterprise value of €1.48 million on €3 million revenue is just under 0.5 times revenue. According to the KfW succession monitor, German SME owners on average aim for a price of 1.2 times annual revenue, with a median of 0.6. These are sellers' expectations, not prices actually paid. So the example sits below what many owners expect, but not far from the median. That gap between expectation and valuation is often the real subject of the negotiation.

The question that really counts: does it pay for itself?

A multiple tells you what the market would pay. Whether you can pay it is a different question. After the takeover, EBITDA has to cover replacement investment, taxes, your own salary and the loan. Banks therefore check how many times free cash flow, the money left after all running costs, covers the annual debt service.

In the example, a €1 million loan over ten years at six per cent interest would cost around €136,000 a year. If roughly €230,000 is left after investment and taxes, there is headroom. If EBITDA shrinks in the first year because a major customer leaves with the old owner, it gets tight. That is exactly why part of the price is often structured as a vendor loan or an earn-out. You can run the numbers for your own case in the financing calculator.

Checklist: the documents you need for adjustment and price

Whether EBITDA has been adjusted properly and a price is affordable can only be checked against documents. Owners put them together, successors request them and work through them point by point. This list covers the essentials:

• Annual accounts for the last three to five years, with balance sheet and profit and loss statement.
• Current management accounts (in Germany the BWA) and trial balance for the current year.
• Payroll list with all pay for the owners and family members working in the business, including company cars and benefits. The basis for the owner's salary adjustment.
• A list of one-off or unusual income and costs per year, with evidence: lawsuits, damage, special orders, insurance payouts.
• A list of privately motivated costs run through the business, such as vehicles, travel and insurance.
• Lease and rental agreements, especially if the owners privately own the premises, plus a comparison with local market rent.
• Fixed asset register with the age of key machines and vehicles and planned replacement investment. Shows what sits behind depreciation.
• Revenue by customer for recent years, at least the ten largest. Shows how dependent the business is on individuals.
• Key customer and supplier contracts, above all terms and change-of-control clauses.
• Loan agreements, leases and guarantees with remaining terms. Needed to get from enterprise value to purchase price.
• Bank balances and a schedule of receivables, payables and inventory at the reference date. The basis for surplus cash and working capital.
• A plan or forecast for the next one to three years, even a simple one.

Owners do well to assemble these documents early with their tax adviser. Having them complete makes negotiations calmer and faster. Successors: if something is missing, ask. Every adjustment without evidence is an assumption, and assumptions belong in the negotiation, not silently in the price.

For owners: raise the value before you sell

The multiple is not fixed fate. It falls when everything depends on the owner and rises when the business runs without them. Owners who spend two or three years before the handover spreading customer relationships across several people, building a second management layer and taking private costs out of the business usually sell not just more easily but for more. That is why we don't only prepare successors, we also prepare the company for them. See how on the page for owners.

For successors: three questions to ask of any valuation

• Which adjustments are included, and can I follow every one of them?
• Why this multiple and not one at the top or bottom of the range?
• Can the business carry the loan even if the first year is weaker?

For a broader overview of earnings value, asset value and multiples, read How much is a business worth?. If you want to take over a business and are looking for support with valuation, financing and negotiation: apply for the programme. This article is not a substitute for a valuation by a tax adviser or an expert.