What Buyers Need to Know About SDE and Multiples
Buying a service business is one of the biggest financial decisions you will ever make. If you are searching for information on how to value a service business in Australia, you are probably feeling a little nervous right now. That is completely normal. You want to pay a fair price — not too much, and not so little that the deal falls apart. The good news is that business valuation does not have to be a mystery. Once you understand two key ideas — Seller’s Discretionary Earnings (SDE) and valuation multiples — you will be in a much stronger position to assess any deal. This guide is written specifically for Australian buyers looking at service businesses, from cleaning companies to IT support firms.
1. What Is Seller’s Discretionary Earnings (SDE)?
Seller’s Discretionary Earnings — or SDE — is the most common measure of profit used when valuing small service businesses. It shows you how much money a working owner takes home each year, before taxes and certain non-cash expenses.
| Quick Definition: SDE = Net profit + owner’s salary + add-backs (non-recurring or personal expenses run through the business). It represents the total financial benefit to one full-time owner-operator. |
Why does SDE matter? Sellers often run personal costs through their business. This can make profit look lower than it really is. SDE adjusts for that. It gives you a clean, honest picture of earning power. You can read more about business financials on the Australian Taxation Office (ATO) website.
Common SDE Add-backs Include:
- Owner’s wages or salary drawn from the business
- Personal vehicle expenses charged to the business
- One-off legal or consulting costs unlikely to repeat
- Depreciation and amortisation
- Personal insurance premiums paid through the business
Action Step: Ask the seller for three years of financial statements. Then ask their accountant to provide a written SDE calculation with each add-back listed and explained.
2. What Are Valuation Multiples — and Why Do They Vary?
Once you know the SDE, you apply a multiple to arrive at a sale price. A multiple is simply a number — often between 1.5 and 4 for small Australian service businesses — that reflects how desirable and reliable the business is.
| Example:If a business has an SDE of $120,000 AUD and the agreed multiple is 2.5, the asking price would be $300,000 AUD. |
Why do multiples vary? Because not all businesses carry the same risk. A business with loyal recurring customers, trained staff, and documented systems is worth more than one that relies entirely on the owner’s personal relationships.
Factors That Push Multiples Higher:
- Strong recurring revenue (e.g. maintenance contracts, retainers)
- Established brand with good online reviews
- A team that stays without the current owner
- Clear systems and processes (written down, not just in someone’s head)
- Diversified customer base — no single client represents more than 20% of revenue
Factors That Pull Multiples Lower:
- Owner-dependent business — everything goes through one person
- Informal record-keeping or cash-heavy operations
- High staff turnover or reliance on subcontractors
- Seasonal or inconsistent income
- Pending legal issues or compliance concerns
Action Step: Score the business against these factors before you negotiate. Each weakness is a reason to ask for a lower multiple — or to walk away altogether.
3. How to Calculate SDE: A Step-by-Step Process
Let’s make this practical. Here are the steps to calculate SDE for any Australian service business.
- Obtain three years of financial statements. Profit and loss statements and tax returns are both useful. The ATO requires businesses to lodge accurate returns, so these are a reliable starting point.
- Start with net profit. This is the bottom line on the profit and loss statement after all expenses.
- Add back the owner’s salary. Include superannuation contributions at the current rate (11.5% in 2024–25).
- Add back non-recurring expenses. One-off legal fees, redundancy payments, or equipment write-offs that will not repeat.
- Add back personal expenses. Vehicles, phone plans, or travel costs of a personal nature run through the business.
- Add back depreciation and amortisation. These are accounting entries, not actual cash expenses.
- Subtract any costs you will incur that the seller did not. For example, if you will need to hire a manager to replace the owner’s work, that wage comes off the SDE.
- Verify with an independent accountant. Never rely solely on the seller’s numbers. A qualified Australian accountant will review everything and flag any inconsistencies.
4. Real Australian Examples — Industry by Industry
Different service businesses attract different multiples. Here is how buyers should approach some of the most common types listed on Australian marketplaces like Seek Business and Business2Sell.
Cleaning Business
A residential cleaning company with $90,000 SDE and a 12-month commercial contract would likely attract a multiple of 2.0 to 2.5. The contract reduces risk. However, if the owner does most of the cleaning themselves and has no staff, the multiple drops toward 1.5. Buyers should verify that contracts are transferable.
Trades Business (Plumbing, Electrical, HVAC)
A licensed electrical company with four qualified tradespeople and a mix of residential and strata clients might command a multiple of 2.5 to 3.0 with an SDE of $180,000. Licensing is critical. Check with the relevant state body — for example, Energy Safe Victoria — to ensure licences are current and transferable.
Lawn Care and Garden Maintenance
A lawn care run with a regular client base and one full-time employee might have an SDE of $75,000 and attract a multiple of 1.8 to 2.2. These businesses are often cash-heavy, so request bank statements alongside the tax return. The Queensland Government’s small business portal provides useful guidance for buyers in that state.
Bookkeeping and Accounting Services
A bookkeeping practice with 40 recurring monthly clients, using Xero or MYOB, and one part-time employee could have an SDE of $100,000 and a multiple of 2.5 to 3.5. These businesses attract higher multiples because of recurring fees and low overheads. The key question is whether clients will stay after a change of ownership.
IT Support and Managed Services
A managed services provider (MSP) with monthly recurring revenue from 15 business clients and an SDE of $200,000 could attract a multiple of 3.0 to 4.0. High multiples reflect strong revenue predictability. Verify all service contracts and check that software licences are assignable.
Childcare and Early Education
Private childcare centres in Australia are regulated under the National Quality Framework. A well-rated centre with a long-term lease and 60 enrolled children might command a multiple of 3.0 to 4.5 on an SDE of $150,000. Regulatory compliance is non-negotiable. Always verify approval status with the Australian Children’s Education and Care Quality Authority (ACECQA) at acecqa.gov.au.
5. Where to Find Service Businesses for Sale in Australia
You do not have to search in isolation. These trusted Australian platforms list verified businesses for sale:
- Seek Business (seekbusiness.com.au) — Australia’s largest business-for-sale marketplace
- Business2Sell (business2sell.com.au) — strong coverage across all states
- LINK Business Brokers — one of Australia’s most recognised brokerage networks
- Finn Business Sales — specialists in franchise and independent businesses
- Resort Brokers — specialises in accommodation and hospitality
Reputable brokers are members of the Australian Institute of Business Brokers (AIBB). Membership indicates professional standards and adherence to a code of ethics. Always confirm your broker holds a real estate or business broker licence as required in your state. Check with your state’s fair trading office — such as NSW Fair Trading or Consumer Affairs Victoria.
6. Key Due Diligence Steps Before You Sign Anything
Due diligence is your chance to verify that what the seller says is true. The business.gov.au guide to buying a business outlines your key obligations. Here are the core steps:
- Verify the Australian Business Number (ABN) and legal structure at business.gov.au.
- Check the Australian Securities and Investments Commission (ASIC) register for company records, officeholders, and any legal proceedings at asic.gov.au.
- Request three years of tax returns and BAS (Business Activity Statements) for GST compliance.
- Confirm all employee entitlements are up to date — including superannuation, annual leave, and long service leave — under the Fair Work Act 2009.
- Check for any personal property security interests using the Personal Property Securities Register (PPSR) at ppsr.gov.au.
- Confirm leases, contracts, and supplier agreements are assignable to a new owner.
- Engage a solicitor experienced in business sales to review the contract of sale.
7. How Much Should You Pay? Understanding Typical Australian Multiples
Here is a general guide to where multiples sit for common Australian service businesses. These are indicative ranges only. Market conditions, location, and business quality all affect the final price.
| Business Type | Typical SDE Multiple | Notes |
|---|---|---|
| Cleaning Services | 1.5 – 2.5x | Higher if commercial contracts in place |
| Lawn Care / Garden Maintenance | 1.8 – 2.2x | Lower if owner-operated with no staff |
| Trades (Plumbing, Electrical) | 2.0 – 3.0x | Licence transferability is key |
| Bookkeeping / Accounting | 2.5 – 3.5x | Strong recurring client base needed |
| IT Support / Managed Services | 3.0 – 4.0x | Monthly recurring revenue drives value |
| Childcare / Early Education | 3.0 – 4.5x | Compliance and ratings are critical |
Action Step: Use these ranges as a starting point for negotiation. Always have your own accountant calculate an independent SDE figure before making an offer.
Frequently Asked Questions (FAQ)
Q1: What is SDE in business valuation, and why does it matter?
Seller’s Discretionary Earnings (SDE) is the total financial benefit to a single working owner. It equals net profit plus the owner’s salary, superannuation, and approved add-backs. SDE matters because it gives buyers a true, adjusted picture of a business’s earning power — stripping out expenses that are personal or one-off.
Q2: What is a typical SDE multiple for a small service business in Australia?
Most small Australian service businesses sell at 1.5 to 4.0 times SDE. The multiple depends on risk, recurring revenue, staff stability, and how reliant the business is on the current owner. Lower risk equals a higher multiple.
Q3: How do I know if the seller’s numbers are accurate?
You verify them independently. Request three years of tax returns, profit and loss statements, and bank statements. Cross-check with ATO business activity statements (BAS). Engage a qualified Australian accountant to review the SDE calculation and flag any discrepancies before you commit to a price.
Q4: Do I need a business broker to buy a service business in Australia?
You are not legally required to use a broker, but an experienced one can help you find suitable businesses, negotiate price, and navigate the sale process. Look for AIBB members at aibb.com.au. Always confirm they hold the appropriate state licence.
Q5: Are there extra costs when buying a business in Australia?
Yes. Budget for stamp duty (which varies by state), legal fees, accountant fees, and adjustments for prepaid expenses and stock on settlement. Buyer’s fees to a broker are rare in Australia — sellers typically pay the broker — but always confirm this in writing. Allow 3–5% of the purchase price as a buffer for acquisition costs.
| Join the Conversation Have you recently bought or sold a service business in Australia? We would love to hear about your experience with SDE and multiples. If you are currently in the research phase and have questions, drop them in the comments below. This is a welcoming community — there are no silly questions when it comes to one of the biggest decisions of your life. |
| Ready to Take the Next Step? You now have the foundations to value any Australian service business with confidence. Here is what to do right now: ✅ Download our free Due Diligence Checklist for Australian Business Buyers ✅ Connect with an accountant who specialises in small business acquisitions. Buying a service business in Australia is achievable. Thousands of Australians do it every year. With the right advice, the right numbers, and the right support team, you can too. |
Disclaimer: This article is for general informational purposes only and does not constitute legal, financial, or accounting advice. Always consult qualified professionals before making any business acquisition decision. Information is current as at April 2026.
sa-0009
