The purpose of this study was to examine previous literature on Entrepreneurs’ and small businesses’ (hereinafter simply, Entrepreneurs) required rates of return coupled with empirical observation of small business returns. It is hoped that this study provides Entrepreneurs with a guideline of what they should expect to earn in the marketplace given the risk they take coupled with an analysis of what actually has happened. Previous returns were compiled from the Institute of Business Appraisers (IBA) database of small business sales from the years 1982 to 2000. Additionally, publicly traded, large company earnings and returns were gathered for the same time frame from Standard and Poor’s (S&P) Compustat database. Both sets of data are large samples, approximately 11,000 from IBA and 19,000 from S&P. Thus, it is assumed that statistical power of sampling error is minimized and returns reflect approximate reality.

JEL Codes

L25, L26, M13


Entrepreneur, Cost of Capital, Required Return