[sarchertech]

I know enough of trade business owners to know that a business worth $10 million is rare.

Just using some back of the envelope math from numbers I found. On the high end a plumbing company is valued at 5x EBITA. A very very good plumbing company has a 20% net profit margin (and no debt, no corporate taxes or anything so that net income and EBITA are essentially the same), and a good plumbing company makes $350k in revenue per truck.

So a $10 million plumbing company would need to have 30 trucks, all with high performing employees. They’d need to bring in $10 million in revenue at best in class profit margins.

That’s a huge operation. Very few plumbing businesses owners will ever get to that level. There are 3 times as many doctors in the US as there are business owners with business that do the kind of revenue in the above example. If you’re capable of running an operation like that you can probably succeed at plenty of other things.

[hn_throwaway_99]

I am not in the business of valuing small businesses, but one thing that seems off to me is that an EBITDA multiple is usually also dependent on the overall size of the business. That is, a business with only $1 million in EBITDA may only be worth 3-4x that, while a business with $10 million in EBITDA might be worth 8-10x EBITDA, on the theory that larger businesses will be more stable and less likely to have key person or large customer risk (some examples, https://raincatcher.com/ebitda-valuation-multiples-by-indust...)

That said, I agree with your overall assessment that $10 million single-owner plumbing businesses are rare, for the simple reason that $10 million single owner anything is rare. If it were not rare, by definition you'd have a lot more folks worth $10 million (and, in this case, a lot more people lining up to be plumbers), and then $10 million would probably not be worth very much.

[sarchertech]

I’m not a plumber but from spending 20 minutes looking into it, it looks like the primary thing that changes the value multiple is how involved the owner is in the business (your key person risk). 5x was also on the high side of the multiples I saw.

The thing to keep in mind though is we’re talking small business, once you get to $10 million EBITA, you’re probably talking $50-$200 million in revenue and 200-500 employees. Thats firmly into mid sized business territory and I think revenue growth would be the or primary driver of the multiple.

From your source a 10x multiple would require very high revenue growth. That makes sense because you can get 10% average return with index funds, so you need to significantly beat that ROI.