Types of Businesses: What are the differences?

In Greece, businesses are divided up based on three criteria (Total assets – Turnover – Number of Employees) into:

  • Large entities
  • Medium entities
  • Small entities
  • Very small entities

 

When we are trying to buy a very small or small business, we cannot use the rules and criteria that we would use for a medium or large entity. If we compare very small and small businesses with medium and large ones, we will observe that there are fundamental differences in describing and analysing their financial statements and outcomes, as well as in their way of operating and performance. Before we start looking for a very small or small business to purchase, we first need to understand the differences between the different sizes of businesses. 

To begin with, based on article 2 of Law 4308/2014, businesses are categorized based on their size as follows:

  • Large entities: (those which exceed the limits οf at least two of the following three criteria)
  • Total assets: 20,000,000 euros.
  • Net turnover: 40,000,000 euros.
  • Average number of employees during the same time period: 250 individuals.
  • Medium entities: (those which do not exceed the limits of at least two of the following three criteria)
  • Total assets: 20,000,000 euros.
  • Net turnover: 40,000,000 euros.
  • Average number of employees during the same time period: 250 individuals.
  • Small entities: (those which do not exceed the limits of at least two of the following three criteria)
  • Total assets: 4,000,000 euros.
  • Net turnover: 8,000,000 euros.
  • Average number of employees during the same time period: 50 individuals.
  • Very small entities: (those which do not exceed the limits of at least two of the following three criteria)
  • Total assets: 350,000 euros.
  • Net turnover: 700,000 euros.
  • Average number of employees during the same time period: 10 individuals.


  • They operate and make profits in different ways

 

Medium and large businesses, those with gross earnings that fluctuate within the many millions of euros, are mainly companies that are seeking to enter the stock market. In this way, they earn money not only by selling goods and services but also by selling shares for a specific price. Furthermore, their financial statements are formally audited chartered accountants and are published on a quarterly and yearly basis. The owners (shareholders) regularly receive outcome reports but they do not participate directly in the company. They are administered by a group of executives who are accountable to the board of directors.

On the other hand, very small and small private businesses make their money mainly through selling their goods and services. These businesses are not obligated to audit their finances or report their profits, but the owner can opt for regular auditing of their finances in order to help them manage the business. In most cases, the owner has some level of participation in the business. In very small businesses, the owner takes on not only the role of manager but also all of the others as necessary so that the business can operate properly. The owner of a small business is not accountable to anyone other than themselves.

 

  • Their finances have different goals

 

Medium and large businesses, which are public and belong to shareholders, want to show their profits, growth rate and wealth. They want to show how well they are doing so that they can sell shares at the highest possible prices. Their quarterly and yearly reports may even present to shareholders their profits before taxes so that the results can seem more attractive to them, even though the net amount can differ significantly. In terms of profit potential, the financial performance of large businesses is usually measured by EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).

In the world of small businesses, the exact opposite happens: businesses attempt to show the lowest possible profits, mainly in order to reduce taxes. However, they do reveal a lot of information about the financial performance of the company and profit potential – you just have to know how to examine them. When we look at small businesses, the profit of the seller is measured in SDE or Seller’s Discretionary Earnings, which represents the amount that remains for the seller as income. In other words, the value of the sales and gross sales contribute to determining the value of a small business.

 

  • The size of the business can affect its potential earnings

 

Even though gross sales can be an accurate means of determining the value of a business, high gross sales do not necessarily mean higher value.

As soon as a business is earning more than one million euros in gross sales, their potential profits can be reduced significantly. This is due to the fact that they cost more to keep in operation. They have more staff members, employees, supplies and, often enough, smaller profit margins.

If you are looking for a very small or small business that is earning less than one million in gross sales, a good rule for determining SDE is to take into account 20 percent of gross sales. However, if you are looking for a larger business that is earning above one million in gross sales, the SDE is reduced to about 10 percent or less of gross sales.

 

Smart buyers of businesses will pose targeted questions and do their research before beginning their search. When buying a business, some of the most fundamental questions to which you will need to get solid answers are:

  • How many years will it take me to pay off my investment?
  • How much will business performance be affected by the change in management?
  • How much money am I able to make?

Understanding the true value of a small business demands professionalism and research. If you are interested in ensuring the best result when making such a decision, you should not hesitate to contact the expert staff at Business Interval.

Share:

icon-buy

HOW TO BUY A BUSINESS

Basic knowledge of how to buy a business

icon-sell

HOW TO SELL A BUSINESS

Basic knowledge of how to sell a business

icon-general

GENERAL ISSUES

Various articles about entrepreneurship in Greece