Comparing businesses that are nothing alike
Asking prices are not comparable across two different businesses. A $4.9M parts shop and an $840K roastery cannot be ranked by price. Multiples, margins, concentration and owner hours can be, and they tell you a different story.
Why price is the wrong axis
Price tells you what you pay, not what you get. Two businesses at the same price can differ by a factor of three in earnings, and by an entire lifestyle in how much of your week they take. Start with the multiple and work outward.
The four rows that matter most
What a cheap multiple usually means
The cheapest multiple on your list is almost never a bargain nobody noticed. It is usually priced for a reason sitting in another row: one large customer, no management layer, a short lease, or an owner working 45 hours a week. Find the reason before you decide it is mispriced.
A business with no management layer needs you in it. If the multiple is low and owner hours are high, you are buying a job with a business attached.
Reading concentration
- Under 10%: no single customer can hurt you.
- 10 to 25%: normal for most small businesses.
- Above 25%: ask when that contract renews, and read it before you offer.
- Above 40%: price the risk explicitly, usually through an earnout.
Owner hours as a price
A business needing 12 owner hours a week and one needing 45 are different purchases even at an identical multiple. Convert the gap into what replacing yourself would cost, then add that to the price you are considering.
How many to hold at once
Four is about the limit for real comparison, and eight for a shortlist. Beyond that you stop comparing and start browsing. Turn on the filter that hides rows where every listing matches, so only the differences are in front of you.
Sector-typical ranges for multiples, margins and concentration need your data before this article states them as benchmarks.