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Placing a Value on the Business

With regard to simple valuations, here are some statistics surrounding private businesses might benefit from thinking about.

  • There are approximately 6 million private businesses that employ people in the U.S.
  • About 300,000 of these businesses do over $5 million in sales.
  • About 150,000 of these businesses do over $10 million in sales.
  • About 55,000 of these businesses do more than $25 million in sales.
  • Private businesses, on average, sell for between three and six times their earnings before interest, depreciation and taxes (EBIDTA).
  • The average private business has an EBIDTA (margin) of between 3 percent and 13 percent.

If we take a business that generates $10 million in sales and that has an EBIDTA of 10 percent, a sale might have the following result:

sales $12,000,000
ebidta of 10% $1,200,000
sale price of 5.0 x ebidta $6,000,000
taxes and expenses on business sale – 35% $2,100,000
net proceeds from sale available to invest $3,900,000

Naturally, this assumes no bank debt, and you own 100% of the stock.
It also assumes you, as seller, do not have to take back seller notes (partially financing the sale), which at this level today is quite common.

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