When it comes to business valuation, “it depends” is the honest answer to the question, what is the median for small business (sorry, I hate the answer too).
Why?
Let’s say you own a construction business doing $5 million/year in revenues and $500,000 in EBITDA (profits), or about 10% of revenues.
Because construction businesses can range from $0 to $billions, valuation tracking databases have to set parameters.
Databases will report multiples to get a value for smaller construction businesses, but the RANGE might look like this:
3.23x for 25th percentile
5.23x median
12.65x for 75th percentile
However it really depends on the nature of the businesses selected to generate the range. If an advisor chooses large businesses, the range could be as follows:
8x for 25th percentile
12x median
20x for 75th percentile
If you are the owner of the $5 million construction business with $500,000 profits, you may want a value of 20x profits, but you are likely to be disappointed.
Even with the smaller range, the 75th percentile probably means companies at $15 million in revenues and 15% profits.
So business owners: you need to ask about the range of value for the higher and lower percentiles, to get a fair judge of value.
I can assure you that buyers (and their bankers) who use these same databases, will ask about the range.
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