How Much Can You Sell Your Business For - Guide To Business Value

FAQ

How long does it take to sell a business?

It takes 8 – 10 months to sell a business.

There are instances where small companies can sell faster than that, but companies generating $500k+ in profit that are looking to sell for top dollar need to be sold in a full auction process. This takes 8+ months.

How are businesses valued?

The vast majority of small and mid-sized companies are valued on a multiple of EBITDA.

Some rules of thumb are:

Companies under $250K in EBITDA =1.5 – 2.5 X EBITDA
Companies $250k – $750k in EBITDA =2 – 3.5 X EBITDA
Companies $750k – $1.5M in EBITDA =3 – 5.5 X EBITDA*
Companies $1.5M – $5M in EBITDA =4 – 9 X EBITDA*

*= Eligible for Raincatcher’s auction process.

How Much You Can Sell Your Company For on the Open Market

Main Street Deals (Sub $3m Revenue)

90% of American businesses generate less than $3m in annual revenue, so we’ll start there.

Companies with under $3m in sales will typically sell for 2.5 – 3.5 X their discretionary earnings (total cash the owner could take out of the company). Smaller companies that are even more owner-reliant will even be lower than that.

Note that we recently sold a B2B SaaS company for $10M+ that had $2.5M in revenue and $1.5M in adjusted EBITDA, so this material is meant to be a guideline. Valuation is part art and part science.

Lower Middle-Market Companies ($2M – $100M in Revenue)

The rule of thumb here is going to be very broad. Something along the lines of 4 – 15 X adjusted EBITDA, depending on a whole litany of factors.

90% of companies will trade within this range. However, some of these deals (small, owner-reliant, cyclical industry, thin margins, etc.) won’t sell at all.

Publicly Traded Companies (Typically $100M+ in Annual Sales)

Publicly traded companies trade at a significant premium to that of private market companies.

Again, there is no rule of thumb on what the arbitrage is in jumping from being a large, privately held company to a small, publicly traded company.

A hypothetical, but believable scenario would be a company with $250m in revenue and $40M in profit being worth $500m in the private markets and $700M upon IPO (being publicly traded).

See Our Business Valuation Calculator

We got the “how much can I sell my business for?” question enough that we went ahead and made a free business valuation calculator to help business owners get a sense of their worth.

How to Increase the Value of Your Business

Fundamentally, improving financial performance could be as simple as increasing the size of your business, decreasing owner reliance and decreasing reliance on any single supplier or client.

Building and maintaining a diverse and loyal customer/client base is beneficial, emphasizing customer satisfaction, long-term relationships, and effective retention strategies.
Establishing a strong market position and differentiation through competitive advantages, be it innovation, branding, or market niche, can also make the company more attractive to potential buyers.
Investing in talent management, fostering a positive company culture, and retaining key personnel contribute to stability and growth potential.
Mitigating any risks that a potential buyer may be concerned about such as relationships being reliant on an owner, or client contracts not being assignable to the new buyer at time of close can also be of benefit.
Finally, running a streamlined sell-side process with a company who has been there before and worked with clients in your industry will help maximize the number of bids and the terms that you get.

Who Would Buy Your Business

Main St. Companies

For small businesses (Under $1m in profit) the unfortunate fact of the matter is that the market is somewhat illiquid.

While there are cases of private equity groups moving down market for companies this size, they will be very picky in this range and are looking for niche, differentiated companies in the tech, software and highly engineered manufacturing space.

Other companies such as residential service companies and healthcare practitioners could be appealing as part of a roll-up strategy.

Lower Middle-Market Companies

Companies $1m – $15m in EBITDA will likely see an array of bidders. The most common acquirer for a business this size is private equity groups. However, these companies also oftentimes get bids from strategic buyers such as their competitors, suppliers and customers, and family offices.

What is the 'Rule of Thumb' for valuing a business

While the valuation process is a nuanced one and depends on a number of factors about the market, the business and how competitive the auction process is for the company, a decent valuation starting point is as follows.