Small businesses typically sell for three to four times annual net profit. Buy a $1 million business earning $300k yearly in profit, and you get a 30% annual return on your cash. That's the math hiding in ordinary small-business deals.
They sell for typically maybe 3 to 4 times net profits, annual profits. So let's say that a business is selling for, let's call it $1 million. Well, at a 3 to 4 times, that means it's gonna have about, let's call it $300K a year of net profit, right? Now, if I pay cash, I have to write a check for the full $1 million. So I pay $1 million, I make $300,000 back. That's pretty good. That gives me a 30% return on my money.
