People who regularly buy and sell businesses rely on the market approach much more than traditional valuation experts when valuing a company. One broker, who is also a credentialed valuation expert, first looks to transactional data and, if there are enough comps, does his valuation with that approach before using the income approach as a sanity check. Lance Schmidt, CVA, CBI, CBB, and a former CPA, is the president of National Business Appraisers (Mission Viejo, Calif.) and is a valuation expert as well as a business intermediary and business broker with 30 years of experience in both valuation and M&A or sales of businesses including a specialization in auto dealership valuations. He’s in the Pratt’s Stats Hall of Fame for business intermediaries who have contributed the most transactions to the database.

Good data: How many comps are enough? “If you have six or seven solid comps, then it’s sufficient, in my opinion,” says Schmidt. Of course, they have to be relevant, he points out, so you have to consider factors such as the time frame of the transaction. One idea he offers is to talk to the broker who submitted the data to make sure the comp is relevant. If the comps turn out to be not as solid as you thought, can you still use the data? Yes, says Schmidt, but in a different way. The data can be used as a benchmark that can be refined using certain techniques.

Schmidt, along with BVR’s Adam Manson, will present a free webinar on September 20, Better. Faster. Free. How Business Intermediaries Can Excel with DealStats, which will show business intermediaries and business brokers how to use DealStats (formerly Pratt’s Stats) to identify and analyze comparable private business sales.