Rules of Thumb
From http://rulesofthumb.org/ I find the following rules of thumb with regard to the setting the sales price of a business:
- The sale price of a small business is between seven and ten times the average profit of the last three years.
- A beauty salon will sell for 0.25 to 0.75 times its gross income, plus equipment and inventory.
- In the ’90s we’d figure that a gas station would sell for $1.25 to $2 per gallon pumped per month.
- A grocery store will sell for 0.25 to 0.33 times its gross income, plus inventory.
- An insurance agency will sell for one to two times its annual renewal commissions.
- A manufacturing company will sell for 1.5 to 2.5 times its net income, including equipment, plus inventory.
- A newspaper will sell for 0.75 to 1.25 times its gross income, including equipment.
- A restaurant will sell for 0.25 to 0.5 times its gross income.
- A retail business will sell for 0.75 to 1.5 times its net, plus equipment and inventory.
- A travel agency will sell for 0.04 to 0.1 times its gross income.
From time to time, I will address valuation rules of thumb. Rather than quickly dismiss them for lack of specificity and gross simplicity, I will pause to consider the theoretical integrity and practical acceptability of certain valuation rules of thumb. Who knows? Some may actually be sufficiently reliable.
Posted on Wed, April 8, 2009
by Timothy E. Moffit