SouthJersey.CPA

When I was in business school and then on Wall Street in the 1980s, the stock market traded at about 10 times earnings. Small private companies often sold for only a few times the owner’s earnings. We measure small‑business earnings a bit differently today (for example, using the owner’s total pay and perks), but the basic idea is the same.
Today, the stock market is often priced at more than 20 times earnings, and on some long‑term measures over 30. Yet many small, local businesses still sell for less than 3 times their normalized earnings. Over time, big public companies have become much more expensive relative to small businesses.
Studies point to a few reasons. Big, well‑known companies are easier to trade and have attracted more and more money from large investors and index funds. Small private firms, by contrast, look riskier and are harder to sell, so buyers demand a bigger discount. In short, the financial system has rewarded people who own diversified portfolios of big companies, while the “mom‑and‑pop” owner has not seen the same bump in valuations.
I like to point out the flip side of this trend: a well‑run, transferable small business is actually a better relative value today than it was back then. You can see the opportunity in the surge of private‑equity and “search fund” buyers now trying to buy up small businesses. Long term investors can effectively arbitrage gains in the stock market into a larger after-tax cash flow through small business investments. If you are a small business owner thinking about a sale ahead, or an investor looking to boost tax free returns, send a message for a short strategy-focusing conversation. No pitch, just an exploratory call to see if we might be able to create value working together.