Small Businesses Can Be Sold If Profitable and Right Buyer Found
A business does not need $1 million in profit to be sold. Clean books, realistic expectations, and a credible future are more critical. Financial buyers often set an earnings threshold.
Business owners contemplating a sale may believe only large companies are candidates for acquisition. However, exit advisor Christine Slocumb states that any profitable business can be sold if the right buyer is found and realistic price expectations and timelines are set.
In the U.S., the majority of small businesses operate without employees, and many never reach $1 million in revenue, let alone profit. Slocumb notes this is not an outlier situation for smaller operators.
Financial buyers, such as private equity firms, prefer not to bid on companies with less than $1 million in earnings before interest, taxes, depreciation, and amortization (EBITDA). This preference stems from their costly due diligence processes, which can amount to at least $250,000. Smaller businesses also often carry higher risks related to customer concentration or owner dependency.
For smaller businesses, strategic buyers are frequently a more suitable option. These can include individuals transitioning careers, those seeking to acquire talent through an "acqui-hire" model, or competitors aiming for rapid scaling or diversification.
Realistic expectations are crucial for sale price. Many small business owners anticipate offers based on revenue or years in operation. In reality, buyers typically offer 1-2 times EBITDA for businesses with profits under $500,000, unless significant intellectual property or inventory is involved. Once profits exceed $500,000, multiples can increase to 2-3 times EBITDA, and at over $1 million in EBITDA, competition among buyers can drive multiples to 4-6 times or higher.