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:

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.