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Reports	Excel® Format	Definition
N/A	TransactionID	Internal transaction ID number
SIC	SICCode	Standard Industrial Classification code
N/A	SICCodeGeneral	Standard Industrial Classification code - General category
NAICS	NAICSCode	North American Industry Classification System
Business Description	BusinessDescription	Products and services of business
Annual Gross Sales	AnnualGross	Annual Gross Sales ($000's), normally net of sales tax
Sale Date	SaleDate	Actual date of sale
SDE	SDE	Seller's discretionary earnings ($000's) is calculated by adding to the most recent full year’s Net Income Before Taxes (NIBT): Amortization, Depreciation, Interest, Owner’s compensation, Owner’s benefits, Non-business related expenses, and onetime-only expenses. Normally to one working owner
Sale Price	SalePrice	Actual sale price ($000's), inventory has been deducted if it was included in sale price
Ask Price	AskPrice	Asking sale price of business ($000's), does not include inventory
SDE/Annual Gross Sales	SDEToAnnualGross	Seller’s discretionary earnings divided by Annual Gross Sales
Sale Price/Annual Gross Sales	SalePriceToAnnualGross	Sale price divided by Annual Gross Sales
Sale Price/SDE	SalePriceToSDE	Sale price divided by seller's discretionary earnings
Percent Down	PercentDown	Down payment as a percent of sale price
Terms	Terms	Terms of primary new or assumed loan
Inventory Value	InventoryAmount	Inventory at the time of sale($000's)
Furniture, Fixtures & Equipment	FFE	Estimate of value of furniture, fixtures & equipment ($000's)
Rent/Annual Gross Sales	RentToAnnualGross	Yearly rent divided by Annual Gross Sales
Area	Location	Region or geographical location of business
Days On Market	DaysOnMarket	Actual number of days business was on market
Franchise Royalty	FranchiseRoyalty	Actual royalty less advertising percentage
Number Of Employees	NumberOfEmployees	Number of employees

N/A = Not Available

All sales are assumed to be asset transactions, and exclude cash, accounts receivable, accounts payable and inventory. FF&E (furniture, fixtures and equipment) is included in the sale price. Sale prices are face values (not adjusted to cash equivalent).

The BIZCOMPS® studies of small business sales were initiated in 1990 to investigate and report financial information about small business transactions in the marketplace. Historically, market data on small business transfers has been virtually nonexistent, leaving the investor or advisor to speculate about the fair market value of the enterprise. The BIZCOMPS® studies remove the marketplace uncertainty and provide the reader with detailed, meaningful financial information about these "real world" transactions.

Small business transaction information is not readily available because it is not required to be publicly reported. In the absence of reliable data, investors, appraisers and brokers have attempted to develop universal valuation formulae or "rules of thumb" to set guidelines for appraising small businesses. These generalized "formula" approaches are chastised in most valuation literature and are a poor substitute for comparable sale data. A careful analysis of the BIZCOMPS® database provides market-based comparable sales information and eliminates the need to rely on rule-of-thumb formulae.

The Studies

The objective of BIZCOMPS® is to accumulate reliable comparable business sale information for entrepreneurs, investors and advisors trying to estimate the fair market value of small businesses. The studies are geographically segmented to provide reliable, comparative data that is regionally discriminated. Since business values are affected by external economic forces, it is important to analyze sale data by region.

The BIZCOMPS® Study collects and reports the most relevant financial information available on small business transactions in the United States. Because the information is not required to be publicly reported, BIZCOMPS® obtains its financial information from business brokers and transaction intermediaries. These financial consultants are considered to be reliable and disinterested and their valuable input provides the basis of the BIZCOMPS® Study.

BIZCOMPS® reports all financial information available on each reported transaction without excluding any particular class or type of business. Note that all included businesses were reported by business brokers and, of course, actually were sold. This fact may establish some financial parameters for "sale ability" by a business broker. Specifically, the ultimate sale price of a business sold should be from thirty percent to one hundred percent of gross revenues and from 1.5 to 3.5 times Seller's Discretionary Earnings. This generalization would exclude service stations and travel agencies.

BIZCOMPS' philosophy is to present as much information as possible so that the user can selectively analyze the data based on individual need. For that reason, all sales are shown as asset transactions and do not include cash, accounts receivable or accounts payable. Inventory has also been excluded but the actual amount of inventory at the time of sale is shown for each business sale.

The exclusion of inventory from the financial averages requires further discussion. In business sale transactions, inventory transfers at the date of closing based on the wholesale cost of "good" inventory existing at that date. Since the amount of inventory can vary so significantly from business to business, BIZCOMPS® believes that the financial ratios of the selling price of a business should exclude this relatively volatile asset. Also, there may be external reasons to manipulate the amount of inventory at the time of closing that, if included, would distort the selling price of the business. If it could be assumed that the "optimal" level of inventory was included in every business sale transaction or that the aggregate statistics would produce the optimal level of inventory, then inventory could be meaningfully included. The author does not believe this is a safe assumption, and therefore inventory is excluded from the statistical averages.

Types of Financial Information Reported

For each business transaction surveyed, the BIZCOMPS® studies report a number of items of financial and other data. Specifically, the survey includes the type of business, the SIC (Standard Industrial Classification) code number, the NAICS (North American Industry Classification System) code number, the date of sale and the location of the business. The survey includes the asking price, the sale price and the terms of sale. Financially, the surveyed information includes the annual gross revenue, the seller's discretionary earnings
(SDE), the amount of inventory, the amount of furniture, fixtures and equipment and the rent as a percent of sales. Of course, the sale price of the business is included and, from it, the sale price as a percent of gross revenue ("Gross Revenue Multiple") and the sale price as a multiple of the seller's discretionary earnings ("SDE Multiple") can be calculated. In a survey of this type, all of this information is important to the user and must be presented in detail for the survey to be significant. The author believes that the user must have access to all of this data, in a fully published form, to be able to meaningfully analyze the information.

The last comparison is by rent paid as a percent of Annual Gross Sales. This important indicator has a lot to do with the profitability and hence the desirability of each individual business. For instance, liquor stores, because of their competitive nature, are particularly sensitive to rent. In general, only exceptional businesses can afford to pay rent that is more than 10% of Annual Gross Sales. Liquor stores should pay rent equal to 5 or 6% of Annual Gross Sales. If a mature business has a rent expense greater than 10% of Annual Gross Sales, it is usually a less profitable business. For this study, contributors supplied rent information on over fifty-eight percent of the business sales reported. Hopefully, that ratio will continue to improve in coming studies.

In the Transaction Summary of the Subscriber Search Results we present medians, averages, coefficients of variation and harmonic means, depending on the data. Many practitioners and academics believe the harmonic mean is a better measure of central tendency for valuation multiples than the mean (the arithmetic average) or median (the middle value in a series). Quoting Wikipedia:

The harmonic mean is the preferable method for averaging multiples, such as the price/earning ratio, in which price is in the numerator. If these ratios are averaged using an arithmetic mean (a common error), high data points are given greater weights than low data points. The harmonic mean, on the other hand, gives equal weight to each data point.

Shannon P. Pratt of Shannon Pratt Valuations, Inc. writes on page 140 of his Second Edition of The Market Approach to Valuing Businesses:

Although the harmonic mean is not used frequently, probably because it is unfamiliar to most readers of valuation reports, it is conceptually a very attractive alternative measure to central tendency.

In addition, Gilbert Matthews of Sutter Securities Inc. wrote an article in the June 2006 Business Valuation Update™ issue that is available here that explains what the Harmonic Mean is and provides a detailed example. Mark G. Filler of Filler & Associates P.A. replied to Mr. Matthews in the August 2006 Business Valuation Update here. In addition, Mr. Matthews was quoted in the July 2001 Business Valuation Update™ as follows:

The harmonic mean is preferable in any ratio in which price is the numerator. For yields, when the price is in the denominator, an arithmetic mean is correct. An example is the “earnings yield” (EPS/P) rather than PE used by the British. If price is the numerator, the result is an inverted ratio for which the harmonic mean is statistically a more appropriate measure of central value. The harmonic mean gives an equal weight to an equal investment in each company, while the arithmetic mean gives three times the weight to a multiple of 30x compared to a multiple of 10x. For most other uses in valuation, the arithmetic mean is appropriate. For a fuller discussion, see “Fairness Opinions”¹ by Mark M. Lee and Gilbert E. Matthews and page 139 and 140 of the Second Edition of The Market Approach to Valuing Businesses by Shannon Pratt.

¹“Fairness Opinions” (Gilbert E. Matthews and M. Mark Lee), in The Handbook of Advanced Business Valuation, R. Reilly and R. Schweihs, eds. (McGraw Hill, 2000).

Lastly, here is an example that is provided by Toby Tatum and is representative for the business valuation profession. In addition, Toby has posted an article at his website that further investigates the harmonic mean:

When calculating the average selling price (SP) to earnings ratios for businesses within a defined industry let’s assume the known selling price to seller’s discretionary earnings (SDE) for one comparable company is 3.0 times earnings and for another it is 2.0 times earnings. The object of the exercise is to determine, on average in a defined industry, what a business is worth based on a given level of earnings. The arithmetic average of these two is 2.50 times earnings. This suggests that if a business has an SDE of $100,000 it is worth $250,000.

Now, do the math for each business purchase separately. Assume the first buyer paid $300,000 for a business with an SDE of $100,000 (i.e., 3.0 times SDE). Assume another buyer paid $300,000 for a business with annual SDE of $150,000 (i.e., 2.0 times SDE). The total price paid for both businesses is $600,000 and the total SDE purchased is $250,000. This yields an average SP/SDE ratio of $600,000 divided by $250,000 or 2.40 x SDE. 2.40 is the harmonic mean value of the Selling Price to Seller’s Discretionary Earnings in this industry. Thus we can conclude that, on average in this industry, if a business has an SDE of $100,000, it is worth $240,000, or for every $1.00 in SDE, the seller gets $2.40 (and not $2.50 as computed via the arithmetic mean above). Therefore, if one is to assume that the fair market value of a subject company is equal to the “average” selling price to earnings ratio for the comparable transactions selected to represent that industry, then the multiple to apply against the known earnings of the subject company must be the harmonic mean value of the comparables, and not the arithmetic mean.

The FF&E value should be adjusted to Fair Market Value in Place. However, since these assets are never sold separately, there is no assurance that this adjustment has been made. The FF&E value used could be book value, the owner's estimate, the broker's estimate or, in some cases, even new cost. For this reason, while the FF&E value is useful in most cases, we suggest caution when using it. On the other hand, you can have a great deal of confidence in the inventory value. A physical inventory is almost always taken at close. These are the only two asset fields in the BIZCOMPS® database.

The food service industry, being the risky business that it is, many of these businesses never really launch or not to the point where the owners get a return on their FF&E investment, let alone make a profit. So the result is the new buyer gets a bargain on the FF&E (an asset sale). Also, as BIZCOMPS has pointed out in the User's Guide, the FF&E estimate is the least accurate of the reported information. The FF&E amount indicated is still useful, though, as it gives some indication of the newness of the FF&E. A higher number should reflect newer equipment.

The cost of opening a new restaurant is huge and the value reported may be the new cost, the owner's or broker's estimate of value, or depreciated book value. It is worth more installed and the value we reflect should be "Fair Market Value in Place" (an M&E appraiser term), helping to earn whatever sales and profits the business generates. If the FF&E is ever taken to the curb and sold, the owner will be lucky to receive pennies on the dollar.

All of the Canadian transactions in BIZCOMPS® are being reported in Canadian Dollars. The BIZCOMPS® advanced search page allows the user to search by Country field, but United States is the default. To search for Canadian transactions only, simply select “Canada” in the Country field. To search for both United States and Canadian transactions, select “all.”

The sales and SDE numbers used in the BIZCOMPS® database are generally the most recent 12 month period. There may be a few cases where the numbers are annualized. i.e. There may be 8, 9, 10 or 11 month "profit and loss statements" that are annualized to make a 12 month period. In any event, the numbers have been through a book check or Due Diligence by the buyer and his or her accountant. Buyers generally are not comfortable making a purchase decision based on "forward figures" even though the most important criteria is what the business will do in the next few years.

The Coefficient of Variation = Standard Deviation / Mean (mean is the same as the average)

The Coefficient of Variation is a measure of dispersion around the mean (average).

The theory is that the valuation multiples with the lowest Coefficient of Variation are those with the least dispersion around their respective means and may be the better indicators of value. The value derived using these valuation multiples may be weighted more heavily than those with larger Coefficient of Variations.

Generally, the highest paid partner's compensation is added back and the lesser paid partner’s compensation is normalized. Typically, brokers who sell businesses try to indicate the highest earnings available to one working owner

In almost all cases you can expect the loan to be fully amortized. That is the standard way these businesses are purchased.

(2) is the correct answer.

Non-Compete and Consulting Agreements are included in the sale price; if there was something negotiated on top of the sale price, it would not be included. Land and Buildings are both excluded from the transaction information and rarely happen.

All that is included in BIZCOMPS® transactions is Fixtures & Equipment and Goodwill. There is no assumed debt. The businesses are considered to be debt free at the time of sale even though there is often new debt created by the transaction.

For more information, see the section in the BIZCOMPS® User Guide titled Converting a BIZCOMPS® Asset Sale to an Equity Value.

Generally, all assets necessary to generate the Discretionary Earnings are included in the sale of a business. Liquor licenses are simply another required license the same as a business license. Occasionally, there may be special circumstances when a license is sold by itself or licenses in an area that limits licenses or special unlimited licenses that permit other activities without limitation. However, it is unlikely that a buyer would pay anymore for that license than what the business profits would dictate. There are also cases where a buyer intends to do something completely different with the license like move it to another location, etc. Part of a business appraiser's duties would be to analyze such situations and apply an appropriate premium if warranted.

The database does not report or know the value of the individual licenses. One option is to value the license separately as an intangible asset. Try to develop an independent value for the additional earning power or eventual resale of that specific license. Or, contact local brokers that are specialists in selling licenses to see if they can provide useful information.

In a boat rental business, the boats would be considered Fixtures and Equipment. That value is included in the Sale Price. In a few cases there are businesses like the one you mentioned that also sell boats. Those businesses sometimes rent saleable inventory. But in general, the first statement is correct. The sale price includes Fixtures & Equipment and Goodwill. That is all that is included in the sale price. The Fixtures & Equipment are one of the assets necessary to generate the revenue the business eventually turns into profit and are rarely sold separately in a profitable, ongoing business.

The Web site's search engines use the underlying data to create the list of SIC codes. If your SIC code is not listed in the search engine, this means there are no transactions with that SIC code in the selected database. You may want to search the other databases to see if they have any helpful data. You can search all databases at the same time, by SIC code, by either clicking here or selecting the "Search All" menu option at the top left. The results of this search engine will display the number of transactions contained in each BVMarketData database. If you click on each databases' representative number, the Web site will display a summary of the data in that database. If you are a subscriber to the selected database, the Web site will display the subscriber search results. If you are not a subscriber to the selected database, the Web site will display the visitor search results.

Assuming you are using Microsoft Internet Explorer, please do the following:

• In Internet Explorer, go to the Tools/Internet Options menu
• On the General tab, in the Temporary Internet Files section, click "Delete Files"
• On the General tab, in the Temporary Internet Files section, click "Settings"
• If it is not already clicked, click the "Every visit to the page" radio button, then click "OK"

Below, we show the term used for the “selling price” in each BVMarketData.com database and its respective definition:

Pratt’s Stats® uses the term MVIC (Market Value of Invested Capital) for the “selling price.” The MVIC is the overall consideration in the business sale and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer.

The Mergerstat/Shannon Pratt’s Control Premium Study™ also uses two terms for the “selling price”; the Target Invested Capital (TIC) and Price. The TIC is the target company's implied total invested capital based on the sum of the implied market value of equity plus the face value of total interest bearing debt and the book value of preferred stock outstanding prior to the announcement date. The Price is the implied market value of equity.

BIZCOMPS^® uses one term for the “selling price”; Sale Price. Sale Price is the actual sale price ($000's) where inventory has been deducted, if it was included in the sale price.

Public Stats™ uses the term MVIC (Market Value of Invested Capital) for the “selling price.” The MVIC is the overall consideration in the business sale and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer.

The FMV Restricted Stock Study™ does not report details on the sale of either a portion of a company or an entire company and therefore does not contain a selling price field. Instead, this database reports the details related to transactions in restricted stock. This database does report a Market Value (in $000s) which is the market value of the firm determined on a pre-deal basis. The market value is calculated by multiplying the shares outstanding before the private placement with the high-low average market price for the stock for the month prior to the transaction. The market value is not the selling price, per se, but a calculation of the value of the total equity on the date of the restricted stock transaction.

The Valuation Advisors’ Lack of Marketability Discount Study™ does not report details on the sale of either a portion of a company or an entire company and therefore does not contain a selling price field. Instead, this database reports the details related to transactions in common stocks, stock options or convertible preferred stocks prior to an initial public offering, and the relationship of these prices to the IPO price per share (the price of the stock paid by the initial public investors to acquire their shares).

Unfortunately Apple does not support the VBScript and macros needed for the BIZCOMPS Analyzer to function.

To print a group of transactions (the current group size is 10); on the search results page in the list of transactions, utilize the icon that looks like a red piece of paper – it is labeled “Print Detail Report Package”. When printing more than a couple of detailed transaction reports, this will save you time.

The best solution is to maximize your print margins. In Internet Explorer the default margin size is 0.75 inches. When you print transaction reports, reduce the print margins to 0.25 inches and most will fit on a single page. Also, you should remove any header/footer information that Internet Explorer includes in web page printouts. The print margins and header/footer settings can be found under File -> Page Setup in Internet Explorer.

Click here for an explanation.

By pressing and holding down the LEFT mouse button, you can highlight a series of SIC codes (either by two digit SIC codes, three digit SIC codes or any series you want [all of manufacturing, for example]).

By holding down the CONTROL button on the keyboard (and clicking with the LEFT mouse button), you can highlight a noncontiguous group of SIC codes.

Address comments or questions about BIZCOMPS^® to:

BIZCOMPS^®
P.O. Box 711777
San Diego, CA 92171
Tel: (858) 457-0366
Contact: sanders@bizcomps.com


Last updated: 02/26/2016