What’s the minimum number of transactions that should be used from a database such as BIZCOMPS or Pratt’s Stats? This debate, which began on the pages of the April issue of Business Valuation Update, is now a lively conversation in BVR’s LinkedIn group. Toby Tatum (Alliance Business Appraisal) says at least 30 transactions should be used. But Ronald D. Rudich (Gorfine Schiller & Gardyn) and Howard A. Lewis (ENVRS and RiskGuidance Co. LLC) disagree—they say the minimum should be five transactions.
No magic number: Commenters on the LinkedIn group tend to agree that there is no magic number. In a BVU “Letter to the Editor,” Gary Trugman (Trugman Valuation) said that using five transactions makes no sense in most of the databases, but you shouldn’t blindly be content with 30 transactions. “Be careful and use your head,” he advises. “I think Gary’s advice to ‘use your head’ is spot on,” writes Bob Kleeman (OnPointe Financial Valuation Group LLC ) in the LinkedIn Group. “In 40 years of business valuation, I don’t think I ever found 30 truly compatible entities,” he says. “Volume will never be a substitute for analysis. Until you really define ‘comparable,’ a blind application of a lot of data is no better than a guess.” Malcolm McLelland of Brazil-based McLelland + Palazzi agreed. “I’m with Messrs. Kleeman and Trugman on this,” he writes.
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