Selling a business

September 23, 2008 6:01 AM

What's a good revenue multiplier for the sale of a software company that has an annual turnover of $500K ? And please explain why
posted by mattoxic to Work & Money (4 answers total)

Revenue by itself is a bit meaningless though is it?

Wouldn't you be better off with a EBIT multiplier, which is what is generally used for Terminal Value valuations in my experience.

(Earnings Before tax & Interest)?
posted by mary8nne at 6:20 AM on September 23, 2008

Too vague. How many clients? How much of the revenue is new vs. repeat customers? How much ongoing (non-capital) expense is required to maintain that level? That's not even getting into stuff like how big the market is vs. your marketshare, barriers to entry, etc.
posted by mkultra at 7:25 AM on September 23, 2008

You just want a simple answer right?

Zero to a third.

The "why" would need all those other factors to be mixed in, but I assume no tangible assets to speak of (some old computers hardly count), probably very 'key man' dependent and probably not big enough to be self-sustaining without the current owner.

Oh wait ... I reread question ... a 'good revenue multiplier' would be 10000000. But I stand by my suggestion above for a realistic one.
;-)
posted by Xhris at 8:13 AM on September 23, 2008

I've never seen a small software company go for more than 3x. And by small, I mean $15M+. If that 500K is low-risk (e.g. not bluebirds or no one single client that makes up > 20%) then I'd say no more than 2x as there is likely a lot of growing pain left to endure versus a more established company. I just don't see any 500K company as being low-risk enough to merit more than 2x. And by less than 2x it could well be 0.1x per Xhris' & mkultra's comments.
posted by GuyZero at 10:28 AM on September 23, 2008