The Cost of Buying Small Business Companies

Chart:  The Cost of Buying Small Business Companies

Scott Shane at Small Business Trends reports:

Many people think buying a business is expensive. But, actually, the typical private company sells at a low price.

According to BIZCOMPS, Business Valuation’s data base of private company sales, the median price of the 12,022 companies sold since 1995 on which Business Valuation has data was $166,000, less than half of one year’s revenue. As the chart below shows, only 5.8 percent of private businesses sold for more than $1 million. Nearly two-thirds sold for less than $250,000.

Why does it cost so little to purchase the typical private company? Do people undervalue small private businesses? Or does the low median price reflect the low value of a typical small company?

Share of Private Companies Selling at Different Prices [Source: BIZCOMPS]