How Singapore SMEs are actually valued

Almost every profitable Singapore SME is valued the same way: normalised earnings multiplied by a sector multiple, then adjusted to get from enterprise value to what you actually receive.

Step one: normalised earnings

Reported profit reflects tax planning and owner preference. Normalised earnings, usually expressed as adjusted EBITDA, reflect what the business earns for whoever owns it next.

Added back: interest, tax, depreciation and amortisation. Owner remuneration above a market rate for the role. Personal expenses run through the company. Genuinely non-recurring costs such as a settled dispute or a one-off relocation. Rent paid above market to a related party.

Deducted, and this is the half most sellers skip: a market-rate salary for whoever replaces the work the owner actually does. Below-market rent that will reset after completion. One-off gains such as asset disposals or grants. Deferred maintenance the buyer must fund immediately. Under-provided items such as unused leave or bad debts.

The most common error in an SME valuation is adding back a three hundred thousand dollar owner salary and stopping there. If the owner does a general manager’s job, the buyer deducts a general manager’s salary. The real add-back is the difference. Presenting the gross figure does not win the argument, it costs you credibility on every other number in the pack.

Smaller owner-operated businesses are sometimes valued on seller’s discretionary earnings instead, which treats the full owner package as available to a working buyer rather than deducting a replacement salary. Our parent firm sets out the difference between EBITDA and SDE and when each applies. For the S$3m to S$30m businesses on this site, adjusted EBITDA is almost always the right measure.

Step two: the multiple

The multiple is a measure of confidence, not of effort. Within a sector range, the difference between the bottom and the top is mostly four things: whether revenue recurs or is contracted, how concentrated the customer base is, whether there is management below the owner, and how quickly the financial records can be verified.

Our published range by sector is in the SME multiples table, updated quarterly.

Step three: from enterprise value to your proceeds

Enterprise value is earnings times multiple. Equity value is what lands in your account, and the difference surprises a lot of sellers late in the process.

Less debt: bank loans, hire purchase, director loans owed by the company, unpaid tax. Plus surplus cash above what the business needs to operate. Then a working capital adjustment, where completion accounts test whether receivables, inventory and payables are at a normal level, and the price moves if they are not.

Then structure. Of the headline price, how much is cash at completion, how much is deferred, and how much is contingent on an earn-out measured after you no longer control the business. Two offers at five million are not the same offer if one is five million in cash and the other is three million plus two million of earn-out.

What a valuation is not

An indicative range is a starting point for a conversation, not a price. The number that matters is what a screened buyer will pay after diligence, and the only way to discover that is to run a process with more than one of them in the room.