“What multiple could I get?” is one of the first questions business owners ask when they start thinking about a sale.

It is a reasonable question, but there is no single multiple that applies to every company in an industry. Sector benchmarks can give you a range. Where your business falls within that range depends on how buyers view the quality, durability, and growth potential of its earnings.

That is why two companies in the same industry with the same adjusted EBITDA can sell at very different multiples. One might sell for 4x EBITDA and another for 8x, with both valuations reflecting how buyers assess the underlying businesses.

Why Industry Multiples Only Tell You So Much

Most owners have heard a valuation multiple before they ever speak with an advisor. A competitor sold for 7x. Someone in the industry mentioned a recent transaction. An article says businesses in the sector typically trade between 5x and 8x EBITDA.

Those numbers can be useful reference points, but they do not tell you what your company will sell for.

Published multiples may come from businesses that are much larger than yours, have different margins, serve different customers, or have a different mix of recurring and project-based revenue. Even a relevant range still leaves the most important question unanswered.

Where does your company fall within it?

Industry matters because it tells buyers something about growth, cyclicality, capital requirements, and the overall attractiveness of the market. But buyers ultimately apply a multiple to the specific earnings of the company in front of them.

What Can Lower an EBITDA Multiple

The common thread among most valuation risks is uncertainty. The less confident a buyer is that today’s earnings will continue after the transaction, the more conservative the valuation is likely to be.

Customer concentration is one of the clearest examples. If one customer represents 35% of revenue, the buyer has to consider what happens if that relationship changes. The risk becomes greater when there is no long-term contract, the account is rebid annually, or the relationship depends heavily on the owner.

Declining earnings create a different problem. Buyers are not acquiring last year’s EBITDA. They are underwriting what the company is likely to earn after closing. If earnings have been falling, buyers need to determine whether the decline has stopped and what a sustainable level of profitability looks like.

Owner dependence can also affect valuation. If the owner manages key customer relationships, approves pricing, oversees operations, and makes most important decisions, the buyer has to consider how the company will perform after the owner leaves.

Revenue quality matters as well. Project-based revenue that has to be won again every year is harder to forecast than contracted or recurring revenue. It can also support less debt, which can limit what a financial buyer is able to pay.

Heavy capital expenditure has a similar effect. EBITDA may look attractive, but buyers and lenders also care about how much cash remains after the company replaces equipment and makes the investments required to keep operating.

Finally, financial reporting matters more than many owners expect. Buyers need to verify the earnings they are being asked to value. If the financial statements are inconsistent, difficult to reconcile, or poorly documented, uncertainty increases and diligence becomes more difficult.

What Can Support a Higher Multiple

Many of the factors that support a stronger valuation are the opposite of those risks.

Recurring or contracted revenue gives buyers greater visibility into future performance. It can make earnings easier to forecast, support financing, and make the company attractive to a broader group of buyers.

Customer diversification reduces the impact of any single relationship. A business with no customer representing more than 10% or 15% of revenue is generally easier to underwrite than one where a single account represents a third of sales.

Management depth matters for a similar reason. A company with managers who can run day-to-day operations without the owner is easier for a buyer to take over and gives buyers more confidence that performance can continue after a sale.

Strong and stable margins can indicate pricing power and a defensible market position. Buyers also pay attention to characteristics that are difficult for competitors to replicate, such as specialized certifications, technical expertise, proprietary processes, strong customer relationships, or an established position in a niche market.

Growth can support a higher valuation too, but buyers will want to understand where that growth comes from.

A company growing 30% because it recently won one large customer may be viewed differently from a company growing 15% across a diversified customer base with contracted revenue, available capacity, and a visible pipeline.

The growth rate matters, but the credibility of the forecast matters more.

Same Industry, Same EBITDA, Very Different Values

Consider two industrial services companies, each generating $3 million of adjusted EBITDA.

The first company operates primarily on a project basis. Its largest customer represents 35% of revenue and rebids its work annually. Earnings have declined over the past two years. The owner remains responsible for quoting every major job, and the company’s internally prepared financial statements do not reconcile cleanly to its tax returns.

The second company has most of its revenue under three-year agreements that renew automatically. No customer represents more than 12% of revenue. Earnings are growing, margins are improving, and a general manager runs day-to-day operations. Its financial statements have also been reviewed by a CPA firm for the past three years.

Assume the first company sells for 4x EBITDA, or $12 million, while the second sells for 8x, or $24 million.

Both companies operate in the same industry and generate the same EBITDA. The difference is how much confidence buyers can place in those earnings.

The first company may attract fewer buyers, and those buyers may use more conservative financing because of customer concentration, declining earnings, and owner dependence. The second may attract a broader buyer pool, support more financing, and give an acquirer greater confidence that the business will continue performing after the seller leaves.

That difference is difficult to change once a sale process has already started.

What You Can Change Before a Sale

You cannot change your industry or control the financing environment, but many of the factors buyers use to determine a multiple can be improved before a transaction.

If important customer relationships are based on informal or verbal arrangements, moving them toward written agreements can give buyers more visibility into future revenue.

Reducing owner dependence takes longer. Key customer relationships and operating responsibilities need to move gradually to managers, and buyers will want to see that the business has operated successfully under that structure for some time.

Financial reporting can often be improved more quickly. Clean monthly statements, clear EBITDA adjustments, and financials that reconcile to tax returns remove unnecessary questions during diligence.

Customer diversification is usually a longer-term project. Winning enough new business to reduce the percentage of revenue represented by a major customer may take several sales cycles.

This is why preparing for a sale early matters. Buyers give more credit to improvements that have a track record behind them. A change made three months before going to market will not carry the same weight as one that has been visible in the company’s results for two or three years.

If you are thinking about selling, start working on these issues well before the formal process begins.