How to Read a Business Valuation Report: A Plain-English Guide for Sellers

You've received a business valuation report. It's 15 pages long, full of tables, and somewhere near the end is a number that's either reassuring or crushing. You're not quite sure how they got there.

That's a common experience. Valuation reports are written by professionals, for professionals, and they don't always come with a decoder. This article is that decoder — a plain-English walkthrough of what each section actually means, what to question, and how to use the number in your sale.

Section 1: The executive summary — don't start here

Most valuation reports open with an executive summary stating the indicative value range. It's tempting to read that, react to the number, and skip the rest.

Don't. The executive summary is the conclusion. Understanding how it was reached is what gives you the ability to challenge it, negotiate from it, or improve it. The work is in the sections that follow.

Section 2: Business background and methodology

This section describes the business — its structure, trading history, key customers, industry — and explains which valuation method was used. For most small and medium Australian businesses, the method will be one of two things:

• EBITDA multiple: The most common approach. Takes a normalised earnings figure and multiplies it by a market-derived multiple. (More on this below.)
• Discounted cash flow (DCF): Less common for small businesses, more common for larger or higher-growth businesses. Projects future cash flows and discounts them back to today's value.

If the report uses a method that isn't explained clearly, ask. The valuation method affects the number significantly — an EBITDA multiple approach and a DCF approach applied to the same business can produce materially different results depending on assumptions.

Section 3: The normalisation (add-back) schedule — this is where the number is built

This is the most important section in the report, and the one most owners spend the least time on.

Normalisation is the process of adjusting your reported profit to reflect what the business would earn under typical ownership — removing items that are specific to you, the current owner. This adjusted figure is called "normalised EBITDA" or "adjusted EBITDA," and it's the figure that gets multiplied to arrive at your valuation.

Common add-backs (things removed from expenses because a buyer wouldn't have them):

• Owner salary above market rate — if you pay yourself $350,000 and a market-rate manager would cost $140,000, the $210,000 difference is added back
• Personal expenses run through the business — vehicle, phones, travel with a personal component
• One-off expenses — a legal dispute, a fit-out, a redundancy that won't recur
• Related-party transactions — rent paid to a related entity above market rate, management fees to family companies
• Depreciation — added back because it's a non-cash expense (the "D" in EBITDA stands for depreciation)

That $771,000 is what a buyer will use as the basis for their offer. Not the $420,000 on your tax return.

What to check here: Are all the add-backs reasonable? Are there legitimate add-backs the valuator missed? Is the owner salary assumption (the market rate replacement) accurate for your industry and role? These adjustments can move the final number by hundreds of thousands of dollars, so it's worth going through them line by line.

Section 4: The multiple — where the market comes in

Once you have your normalised EBITDA, the valuator applies a multiple — a figure derived from comparable business sales and market conditions. A multiple of 3x applied to $771,000 gives an enterprise value of roughly $2.3 million.

Multiples vary significantly by:

• Industry: A plumbing business and a software-as-a-service business with identical EBITDA will attract very different multiples. Trade and services typically get 2–3.5x; professional practices 3–5x; tech and recurring-revenue businesses 5–8x or higher.
• Size: Larger businesses attract higher multiples. A $3M EBITDA business will sell at a higher multiple than a $300k EBITDA business — buyers pay more for scale and reduced concentration risk.
• Owner-dependency: If the business cannot function without you, buyers discount the multiple. This is one of the most common value destroyers for family business sales. We covered it in depth in Why Your Business Probably Can't Sell Without You.
• Customer concentration: If 40% of revenue comes from one customer, buyers worry about what happens if that customer leaves after the sale. That worry is priced into a lower multiple.
• Recurring revenue: Predictable, contractual revenue is worth more than lumpy project-based revenue. A business with 80% recurring contracts commands a higher multiple than one that re-wins most revenue each year.
• Growth trajectory: A business growing at 15% per year is worth more than one flat for three years — buyers are paying for future earnings, not just historical ones.

Section 5: Enterprise value vs equity value

The EBITDA multiple produces what's called the "enterprise value" — the total value of the business as an operating entity. This is not the same as what you walk away with.

To get the equity value (what you actually receive), you need to subtract net debt:

Many owners are surprised by this step — especially if they have significant equipment finance, vehicle leases, or a business overdraft. The debt doesn't disappear; it either gets repaid from sale proceeds or the buyer assumes it (and reduces the price accordingly).

Watch for how working capital is treated here too. If the business is being sold with a "normalised" level of working capital (debtors, creditors, stock), the report should state what that target level is. If you sell with more or less than that target, there's usually a price adjustment at settlement.

Section 6: Sensitivity analysis

Good valuation reports include a sensitivity table showing how the value changes as assumptions change. For example: if the multiple moves from 3x to 3.5x, or if adjusted EBITDA is $50k higher, how does the range shift?

This is useful because it shows you which levers actually move the number. If you're wondering whether improving your EBITDA by $100k next year will produce a meaningful valuation improvement, the sensitivity table will tell you — and by how much.

What to do when the number is lower than expected

This is the most common reaction to a valuation report: "It should be worth more than this."

Before disputing the number, work through the normalisation schedule and the multiple assumptions. Ask yourself:

• Are the add-backs complete? Did the valuator capture all legitimate owner costs?
• Is the market rate salary assumption accurate for my industry?
• Was the normalised EBITDA calculated on the most recent 12 months, or an average? If the business is growing, using the most recent period gives a higher base.
• Is the multiple consistent with comparable transactions? What data is the valuator using?
• Have one-off bad events (a lost customer, a difficult trading year) been correctly excluded, or are they dragging down the average?

Legitimate challenges to a valuation are specific and evidence-based. "The number is too low" is not a challenge. "The owner salary add-back used $180k but market rate for a technical GM in this industry is $130k" is a challenge.

How to use the report in your sale

A valuation report is a starting point, not an ending point. Real sale prices are set through negotiation with motivated buyers — and buyers do their own analysis.

Here's how to use the report productively:

• Understand your walk-away number. Know the minimum you'd accept, net of tax and transaction costs, before any offer lands. The valuation helps anchor this.
• Identify improvement levers. If the multiple is suppressed due to owner-dependency, you have a roadmap. Reduce dependency over 12–18 months, and the multiple improves. See How to Make Your Business Less Dependent on You.
• Know your add-backs cold. When a buyer challenges your normalised EBITDA in due diligence, you need to be able to defend each adjustment with documentation. Have the evidence ready.
• Use the report for timing decisions. If the valuation is lower than expected, you now know the gap and what to close. If it's in line with expectations, you know what you're working with when deciding whether to sell now or in two years.

A note on who prepared the report

Valuation reports can be prepared by business brokers, accounting firms, specialist valuers, or AI-based tools (including ours). The quality varies significantly. Things to look for:

• Are the add-backs clearly explained and supported?
• Is the multiple source identified? (Comparable transactions, industry benchmarks, or a single broker's opinion?)
• Does the report distinguish between enterprise value and equity value?
• Is a sensitivity range provided, or just a single number?

A single-number valuation with no supporting methodology is not a valuation — it's an opinion. Use it accordingly.