Following my recent company valuations blog, a post from John Warrillow (Built to Sell author) caught my eye.
His online sellability scoring system captures information about (mainly US) small businesses being bought and sold.
This shows that the average profit multiple for all small companies is about 3.5. For larger businesses, this increases to over 4.5. Interestingly, the trend in recent quarters is very much upwards, especially for the larger businesses (with turnover of $3 million or more).
I am not sure why larger businesses should be more attractive than smaller ones, nor why the gap is widening. I expect it is because larger businesses are assumed to have reduced their dependency on the owners, and maybe there is an increasing perception that small businesses are higher risk so that banks and other lenders will only lend to more professional, larger companies. What do you think?
For the full article, click here.
Please post a comment with your thoughts.