Valuation Multiples for a Software Publishing Business
As technology use continues to grow at a rapid rate, running a software publishing business provides significant opportunities for business owners. To succeed in the software publishing business, it is beneficial to obtain a software publishing business valuation. During a business valuation, a valuation uses valuation multiples for a software publishing business to determine its current value. The valuation process also evaluates a software publishing business’s strengths, weaknesses, risks, and growth opportunities. You can use this data to make informed decisions and boost the performance and value of a software publishing business.
In this article, we define and discuss valuation multiples for a software publishing business. The figures we highlight are industry averages and may not directly apply to your specific business. For a personalized software publishing valuation, it is essential to consult a qualified business appraiser.
As a professional business appraiser, Peak Business Valuation works with individuals who are buying, growing, or selling software publishing businesses nationwide. We are here to help you with a timely and reliable software publishing business valuation! Peak can also answer any questions you may have. Schedule a free consultation with Peak Business Valuation today!
Valuing a Software Publishing Business
When valuing a software publishing business, business appraisers often use a variety of valuation methods. One of the most common methods is the market approach. The market approach uses valuation multiples to compare similar software publishing businesses in the market. Below, we highlight the most frequently used valuation multiples for a software publishing business. For more details, see How to Value a Software Publishing Business.
Valuation Multiples for Software Publishing Businesses
The table below outlines the typical valuation multiples for software publishing businesses. These ranges provide general guidelines, but they may not reflect the value of your software publishing business. To determine the most accurate valuation multiples for a software publishing business, it is important to connect with a professional business appraiser. Peak Business Valuation is here to assist you! Schedule a free consultation to get started!
Disclaimer: These multiples are provided for educational purposes only. The information shared does not constitute professional advice, nor do these figures represent the valuation opinion of Peak Business Valuation or its experts. For personalized advice, we recommend consulting a qualified business valuation professional.
What is a Valuation Multiple?
Valuation multiples are financial ratios that reflect the average price buyers are willing to pay for a software publishing business. These multiples are derived from key financial metrics like cash flow, earnings, or revenue. For instance, Seller’s Discretionary Earnings (SDE) multiples are often used to value software publishing businesses.
Suppose a software publishing business generates $700,000 in SDE. If it receives an SDE multiple of 2.50x, its estimated value would be $1,750,000 ($700,000 x 2.50x). Similarly, if the business is valued at a 4.90x multiple, the estimated value increases to $3,430,000 ($700,000 x 4.90x).
At Peak Business Valuation, we regularly work with valuation multiples for a software publishing business. In the following sections, we provide additional insights into SDE, EBITDA, and REV multiples. For further information, see What is a Valuation Multiple?
SDE Multiples for a Software Publishing Business
Average SDE Multiple Range: 3.38x – 4.00x
Software publishing businesses typically transact within an SDE multiple range of 3.38x to 4.00x. To calculate the business’s fair market value, valuation analysts multiply the SDE by the appropriate multiple. The formula is as follows:
SDE x Multiple = Business Value
For instance, if a software publishing business generates $765,000 in SDE and sells at a 3.73x multiple, the estimated value would be $2,853,450.
$765,000 x 3.73x = $2,853,450
To calculate SDE, valuation experts adjust the software company’s operating profit to reflect its actual cash flow potential. This involves adding back discretionary expenses, owner compensation, and one-time costs. Financial adjustments ensure an accurate assessment of the software publishing business’s profitability. For more details, see Understanding Seller’s Discretionary Earnings.
Peak Business Valuation, professional business appraiser, works with software publishing businesses throughout the United States. We are here to help you with a business valuation for a software publishing business! In addition, Peak can address any questions on valuation multiples for a software publishing business. Start now by scheduling your free consultation with Peak Business Valuation below!
EBITDA Multiples for a Software Publishing Business
Average EBITDA Multiple Range: 4.21x – 4.97x
On average, software publishing businesses transact at an EBITDA multiple range of 4.21x to 4.97x. Business appraisers will calculate the company’s value by multiplying its EBITDA by the relevant multiple. Here is the equation:
EBITDA x Multiple = Business Value
For example, if a software publishing business generates $655,000 in EBITDA and is valued at a 4.50x multiple, it would be worth about $2,947,500.
$655,000 x 4.50x = $2,947,500
EBITDA multiples are also common when valuing a software publishing business as they are useful for assessing profitability. Valuation analysts will use these multiples to compare the performance of similar businesses during the valuation process.
Revenue Multiples for a Software Publishing Business
Average Revenue Multiple Range: 1.03x – 2.59x
Lastly, revenue multiples for software publishing businesses typically fall between 1.03x and 2.59x. See the formula below:
Revenue x Multiple = Business Value
For example, if a software publishing business generates $2,500,000 in revenue and is valued at a 1.76x multiple, its estimated value would be $4,400,000.
$2,500,000 x 1.76x = $4,400,000
Although revenue multiples provide a useful overview of the business’s financial performance, appraisers often prioritize cash flow multiples like SDE or EBITDA when valuing a software publishing business. For more information, see The Valuation Process.
Summary
If you are buying, growing, or selling a software publishing business, a business valuation is a vital tool. Professional business appraisers can determine the fair market value of your business using valuation multiples for a software publishing business. Additionally, a software publishing business valuation identifies the strengths, risks, and growth opportunities for the company. Business owners can use this information to effectively plan for the software publishing business’s future.
Peak Business Valuation is a reliable business appraiser that works with valuation multiples for a software publishing business regularly. We are ready to provide you with a software publishing business valuation and answer any questions you have on how to value a software publishing business! Schedule your free consultation with Peak today!
