10-minute read · by Philippe, who runs a home-service business in Québec
Two service businesses make $300,000 a year with the same margin. One sells for twice the other. The difference is not revenue.
How a buyer calculates
They start from annual profit and multiply it. A small residential service business usually sells for a few times its profit. The whole game is in that multiple, and four factors move it. The calculator gives the order of magnitude.
Factor 1: recurring revenue
Renewing contracts are worth much more than job-by-job work. The buyer of a one-off business buys a hope; the buyer of a contract business buys a forecast, and pays more for it.
Factor 2: your absence
If the business slows when you leave for two weeks, the buyer is not buying a business but your job. The test: if you disappeared for a month, what would stop? Everything that lives only in your head, prices, customer history, who does what, is a reason to discount.
Factor 3: systems
A buyer who sees complete customer files, a shared calendar and written procedures pays more than one handed a binder and a personal phone. The first can take over without you; the second cannot.
Factor 4: concentration
If three customers make half the revenue, the multiple drops: the risk one leaves after the sale is too high. A broad base of small recurring customers is worth more than the same revenue concentrated.
Even if you do not plan to sell
What raises value, recurring revenue, independence, systems, a broad base, is exactly what makes a business livable day to day. And if you are truly close to a sale, get a real valuation: this article and the calculator are for thinking, not for setting a price.