Valuation of privately held companies and family businesses whether done on Main Street by business brokers, the Middle Market by M&A intermediaries, or for deals in the nine & ten figure realm by investments bankers at its core involves a simple multiplication equation EBITDA (Earnings Before Interest, Income Taxes, Depreciation, & Amortization) times a multiple. Business valuation whether conducted by a business sale intermediary as a market opinion of value, an appraiser to satisfy financing or investment requirements, or a CPA/CFO for estate planning purposes or to provide information to shareholders/investors is a sophisticated, nuanced subjective science where ten professionals with similar knowledge and experience have a probability of coming up with ten different values which they all can justify with facts and numbers. A statistical charting of the business valuation figures will likely find the values graphing in a 10 – 20% range with high end values being held by buyers from the strategic acquisition demographic and low-end values being held by parties governed by liquid capital that can be injected into a transaction and/or the availability of financing & investment to support the acquisition. Ultimately, the true value of a business is what a willing seller and buyer agree to in a good faith negotiation. The final value that results in a buyer and seller shaking hands and moving forward from negotiations to facilitating the transaction toward closing can be greatly influenced by the knowledge, experience, and skill of the intermediary conveying the tangible and intangible assets of the company; the opportunities that exist for revenue and market share growth; and the reasons time is of the essence to complete the transaction ranging from tax, technology, or economic environment dynamics present to financing/investment availability to “father time” not providing a founder a limitless opportunity to pursue personal, legacy, or philanthropic objectives in the future.
Acknowledging that there is not one correct answer when valuing a business, as the President & CEO of IBA, the Pacific Northwest’s oldest and largest business brokerage firm and a recognized expert on the valuation of privately held companies & family owned businesses by the Small Business Administration (SBA), business appraisal community, the accounting and legal professions, real estate community, and the banks financing business acquisitions, I thought I would take this opportunity to share knowledge regarding the six primary components that go into determining an EBITDA multiple. The stronger the ability to assess each of these areas by the party valuing the business the more accurate the EBITDA multiple will be for determining the estimated market value of a specific company.
Prior to addressing the components necessary to build an accurate multiple to apply to EBITDA, I want to confirm reader knowledge on what a multiple is in the valuation equation. In this scenario, the multiple is a representation of risk. A five multiple represents an investment where the risk justifies a 20% return. A four multiple risk assessment associated with an business acquisition conveys that the return should equal 25% and a seven multiple risk would be associated with a return of slightly greater than 14%. It should never be forgotten that buying a business is one of the higher risk investments that can be made and success is commonly dependent on the executive management ability of the buyer (https://ibainc.com/blog/gregory-kovsky/the-one-company-asset-that-cannot-be-sold-in-a-ma-transaction-ownership-executive-ability/). If a less risky investment or passive engagement is desired, parties are encouraged to purchase CD’s, bonds, real estate, mutual funds, large cap equities, or small cap stocks in the investment marketplace.
The six components of a EBITDA Multiple
The first component to assess in determining an EBITDA multiple is the company’s competitive position in its marketplace. Is it stable, gaining, or losing market share? Is it competing on price, quality, knowledge, and/or customer service? Does exclusivity or semi-exclusivity exist in the market for the company’s product or service offering? The stronger a company’s competitive position in the marketplace the higher the multiple. For this reason, it is always a stronger position to sell (Higher EBITDA Multiple) when things are going well for a company rather than when the business is experiencing turbulence in its revenues, client retention, marketing strategies, operations, or personnel.
The second component in determining an EBITDA multiple is an assessment of the industry of the subject business. This is not a component an individual business can control or influence. However, higher business values are always achieved in transactions in industries that are thriving than in ones that are stagnant or in decline. In 2026, attention should be given related to the impact artificial intelligence is having and will potentially have on the industry. A buyer with the ability to see the future and incorporate AI into a business model has the possibility of purchasing a company at a value proposition and seeing significant appreciation in the value of their acquired asset in the next 3 – 5 years (https://ibainc.com/blog/gregory-kovsky/ai-entrepreneurship-and-jevons-paradox/). The ability to assess an industry in a specific state or region enhances the accuracy of this multiple component.
IBA is recognized as a market leading business brokerage firm serving Washington and Oregon related to facilitating the sale of manufacturing, technology, healthcare, science (https://ibainc.com/blog/gregory-kovsky/selling-a-science-or-medical-business-model-company/), education, transportation (https://ibainc.com/blog/gregory-kovsky/selling-a-vehicle-marine-or-aerospace-industry-sector-company/), and construction companies. A complete list of our industries of expertise as M&A intermediaries can be found on this page of our website: https://ibainc.com/industries-served/ IBA is actively involved in a spectrum of trade organizations in our served industries and has numerous professionals on our business brokerage team that have worked and owned businesses in the economic sectors they represent as intermediaries.
The third element to assess in determining an EBITDA multiple is the revenue, expense & profit trends for the subject company. Customers vote in the business world with their dollars. The more votes a business receives, the higher this component in construction of a EBITDA multiple and by extension the business value.
The fourth component utilized to build an EBITDA multiple is generated from an assessment of the operations of the business. How are the systems and processes of a business? Are they “best in class” in their industry or antiquated? What does the organizational chart for the business look like? Is it flat or vertical? Does the owner work on the business as a leadership executive or are they a key cog in daily operations? Do SOP’s, employee, and other guidance manuals exist or does the company have an oral tradition for passing on knowledge? How is the technology infrastructure of the business? Is it 2026, 2016, or 2006 in its currency? How transparent and accurate are the financial records of the business? All of these component influence valuation of a privately held company or family business.
The fifth component that is part of EBITDA construction by an experienced, knowledgeable, skilled professional involves an assessment of the risk associated with a transfer of ownership. Issues like the personal nature of ownership’s relationship with customers, vendors, and employees impact this assessment, as does whether a business has repeat customers with longevity in their engagement with the company; customer & vendor concentration issues; lease extension probability; and what the future pipeline of committed projects and bids waiting for decisions looks like for the remainder of the year and into 2027.
The final major element to be assessed in determining an appropriate EBITDA multiple to value a company is the most subjective element, the desirability (or anticipated market demand) for the business in the marketplace. The assessment of this element requires a professional that is actively engaged in the relevant mergers & acquisitions marketplace. The desirability of businesses can range significantly based on industries and geographic locations with a resultant impact on EBITDA multiples and business valuations. Universal & national EBITDA multiples are convenient to employ, but inherently flawed. Business valuation like real estate valuation is a venue where local knowledge & experience are king. A new construction apartment building or medical/office complex in Portland, Oregon will sell for a different value than one in Redmond, Washington based on market conditions. The same is true for a chain of pizzerias based in Franklin County, Washington versus one in Lane County in Oregon when market demand, relevant state & municipal taxes, employee labor rates, and occupancy costs are taken into consideration.
Broker Note: Caution should also be used when referencing sold comparables removed from the operational areas of a business. The following previously published content highlights some of the issues with using sold comparables for business valuation: https://ibainc.com/blog/gregory-kovsky/does-the-ability-exist-to-use-sold-business-transaction-comparables-effectively-in-valuing-privately-held-companies-and-family-businesses/
It is always prudent to engage a business broker with experience selling companies in the relevant geographic location and industry if transaction goals include a timely sale of the business at the maximum possible market value. It should be noted that IBA sold more businesses in 2025, than any other business brokerage firm in the Pacific Northwest, and also has had the strongest Q1 in 2026 among our peer companies when successful closing of transactions is compared.
An assessment of the six primary components of an EBITDA multiple allows a composite multiple to be built. IBA, as the premier business brokerage firm in the Pacific Northwest and the proud facilitator of over 4400 transactions since 1975, generates EBITDA multiples two places to the right of the decimal for its clients in an effort to provide as accurate an assessment of the business value as possible before taking a privately held company or family owned business to market. Our business valuation knowledge is consistently confirmed by the marketplace with an overwhelming majority of the businesses we represent for sale selling within 10% of their asking price. Frequently, values achieved for clients exceed the asking price by 5 – 10% based on the competitive marketplace IBA consistently creates during the sale process. In 2026, we have put deals into escrow where our clients could select from 8 – 18 serious offers from qualified buyers. We also cannot recall a time when one of our business valuations did not pass scrutiny of a third-party business appraiser as part of a SBA loan process.
If you own a business in the Pacific Northwest, are interested in selling in 2026, and would like to know how to value a business or what your business is worth, our team of experienced business brokers working out of our ten Pacific Northwest offices, Bellevue, Bellingham, Everett, Federal Way, Olympia, Seattle, Spokane, & Wenatchee in Washington and Portland & Bend, in Oregon, with industry specific knowledge would welcome the opportunity to provide an overview of our client services. 100% of IBA’s fees for “sell side” clients are paid upon completion of the transaction. All conversations with IBA are held in strict confidence.
It should be noted that IBA’s complimentary, business evaluations serve two purposes for our firm. Client-facing, they allow our professionals to provide business owners with an introduction to our market leading knowledge, experience, and professional skill set without any obligation by the seller to engage IBA for representation services. On IBA’s side, they allow our professionals, who work on a performance based compensation model, to assess if the business sale project is one they are interested in taking on as an intermediary, if the business owner is realistic about their company’s market value, and if the entrepreneur will be a good collaborative partner to work with during the sale process. IBA, as one of the most selective business brokerage firms in the region, traditionally represents 1 of 3 companies where it provides a professional opinion of market value to ownership. 80 – 90% of selected projects are sold in less than a year.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, accounting, legal, wealth advisory, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.