How Much Should You Pay for a Small Business?

The purchase price of a small business is often expressed as a multiple of the most recent year’s EBITDA. The kind of enduringly profitable small business that we’ve described in this book—with EBITDA of between $750,000 and $2.0 million—tends to be priced between 3 and 5 times the EBITDA (often expressed as “3x–5x”). This means that if the most recent year’s EBITDA is $1 million, the purchase price would range from $3.0 million to $5.0 million. While not all smaller businesses sell in this range—distressed firms typically sell for less, and firms that appear to have enormous growth potential often sell for more—our experience and research indicate that this price range does apply to enduringly ...

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