Many small to medium sized business base their asking price on annual earnings multiplied by years. Earnings Multiples are very specific to each industry but broadly speaking it is usually between 1 and 5 times normalized EBIT (Earnings before Interest and Taxes).

To a buyer, paying 1 to 5 times earnings represent getting their initial investment in the business back in 1 to 5 years from profits of the business. This is a projected annual return of 20% to 100%.

The right multiple is the amount the marketplace is willing to pay for the business. This is influenced by factors such as security of income, economic volatility, and availability of financing.