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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.

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