To value a small business with EBITDA multiples: normalise EBITDA, multiply by an industry band, adjust for quality, then bridge from enterprise to equity value. The method is five steps, and most expensive errors happen in steps 1 and 5, not in picking the multiple.
Step 1 — normalise EBITDA (don't skip this)
Start from EBITDA, then adjust to what a new owner would actually experience: market-rate salaries for every working family member, rent at market if the seller owns the premises, recurring "one-offs" put back in costs. If one working owner runs the business, consider whether SDE is the honest basis instead — for most sub-$1M-earnings businesses, it is.
Step 2 — pick the band, not a number
Use an industry band from data, not folklore: US Main Street averaged 2.61× cash flow across 9,586 sales in 2025 (BizBuySell); our Singapore reference runs sector bands from 1.5× (F&B) to 5× (healthcare), SDE-basis, with last-verified dates.
Step 3 — let quality place you inside the band
Recurring revenue, customer diversification (concentration risk), owner independence (the test), books quality and growth headroom decide whether the business deserves the top or bottom of its band — in the GradeThisDeal methodology these literally multiply the multiple.
Step 4 — bridge enterprise value to what you pay
Multiple × EBITDA gives enterprise value. Buyers pay equity value: subtract debt that comes with the business, add surplus cash, adjust for working capital (the net-debt bridge). A "$1M business" with $200K of equipment loans is an $800K cheque.
Step 5 — sanity-check with the asset floor and DSCR
Fair value isn't below orderly net asset value, and it isn't above what a typical buyer can finance at ~1.25–1.5× coverage (DSCR explained).
Worked example
A distribution business: reported EBITDA $310K → normalised to $260K after a market salary for the seller's brother and recurring equipment refits. Wholesale band 3–5.5×, quality mid-band (diversified customers, owner semi-involved) → 4×: enterprise value $1.04M. Net debt $140K → equity value **$900K**. At 75% leverage, DSCR ~1.6× — clears. That's a defensible price; the same math at reported EBITDA and top-of-band would have said $1.7M.
The free calculator runs all five steps — normalisation flags, market band, quality adjustment, net-debt bridge, NAV floor, DSCR — and adds a Monte-Carlo fair-value range so you see the uncertainty, not just a point estimate.