Many people think buying a business is expensive. But, actually, the typical private company sells at a low price.
According to BIZCOMPS, Business Valuation’s data base of private company sales, the median price of the 12,022 companies sold since 1995 on which Business Valuation has data was $166,000, less than half of one year’s revenue. As the chart below shows, only 5.8 percent of private businesses sold for more than $1 million. Nearly two-thirds sold for less than $250,000.
Why does it cost so little to purchase the typical private company? Do people undervalue small private businesses? Or does the low median price reflect the low value of a typical small company?
Share of Private Companies Selling at Different Prices
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Bob Jones
On the contrary, if you look at the (admittedly unreliable) data on the earnings of many small businesses, and especially professional practices, it appears that they are over priced. Buyers are either pricing in synergies or “buying a job.”
Ian Smith
In addition to these facts it may be interesting for entrepreneurs to note that in 2010 only 5568 businesses sold out for $10m or more.
That’s only 0.9% of the 610,000 businesses who employ more than 19 people. Note 26.7m businesses employ 19 people or less.
Lionel Bachmann
I can agree with these numbers. Since the vast majority of small business owners don’t make more than $100,000 take home pay, selling the business for $250k or less would make since. Why spend a lot of money to buy a business that won’t provide you a high amount of profit?