BIZCOMPS Frequently Asked Questions (FAQs)
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- Download PDF version of BIZCOMPS User Guide.
Q: What is the legend for BIZCOMPS data?
A:
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
Q: Are there any limitations that come with a subscription to BIZCOMPS?
A: Both subscribers and day pass purchasers receive access to the full DealStats platform, including unlimited searches, comparable company statistics, summarized results, transaction reports, and PDF exports. Subscribers, but not day pass buyers, receive access to all current and historical issues of the BIZCOMPS Deal Review (a bi-annual publication analyzing transactions from the BIZCOMPS database).
Subscribers to the database are limited to 500 transactions per download that can be exported to Excel, but there are no daily or monthly limits on exporting to Excel. Day pass purchasers are limited to 200 unique transactions that can be exported to Excel in a day.
Only unique exported transactions within a 24-hour period will be deducted from the daily limit for day pass buyers. In other words, once a particular transaction is exported to Excel, exporting that same transaction again during the 24-hour period will not count against the daily export total.
Q: Can you please discuss the difference between the mean and the median and how I may interpret the mean and median values of the search results?
A: Click here to download a PDF with a comprehensive explanation.
Q: I see that you show the harmonic mean (labeled as “H Mean” in the Statistics tab and Summary tab) for the valuation multiples. What is the harmonic mean?”
A: On the Statistics tab and the Summary tab, the FactSet/BVR Control Premium Study presents medians, averages, coefficients of variation, harmonic means, and other statistics, depending on the data. When price is the numerator, many practitioners and academics believe the harmonic mean is a better measure of central tendency for valuation multiples than the mean (the arithmetic average
Shannon P. Pratt writes on page 140 of his 2nd 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 issue of Business Valuation Update that explains what the harmonic mean is and provides a detailed example. Mark G. Filler of Filler & Associates P.A. replied to Matthews in the August 2006 Business Valuation Update. In addition, 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” by Mark M. Lee and Gilbert E. Matthews and page 139 and 140 of the 2nd Edition of The Market Approach to Valuing Businesses by Shannon Pratt.
Q: I see that you show the weighted harmonic mean (labeled as “WH Mean” in the Statistics tab and Summary tab) for the valuation multiples. What is the weighted harmonic mean?”
A: The weighted harmonic mean is often used in finance to average multiples.
Quoting Wikipedia:
The weighted harmonic mean is the preferable method for averaging multiples, such as the price–earnings ratio (P/E), in which price is in the numerator. If these ratios are averaged using a weighted arithmetic mean (a common error), high data points are given greater weights than low data points. The weighted harmonic mean, on the other hand, gives equal weight to each data point. The simple weighted arithmetic mean when applied to non-price normalized ratios such as the P/E is biased upwards and cannot be numerically justified, since it is based on equalized earnings; just as vehicles speeds cannot be averaged for a roundtrip journey.
Quoting Investopedia:
The harmonic mean helps to find multiplicative or divisor relationships between fractions without worrying about common denominators. Harmonic means are often used in averaging things like rates (e.g., the average travel speed given a duration of several trips).
The weighted harmonic mean is used in finance to average multiples like the price-earnings ratio because it gives equal weight to each data point. Using a weighted arithmetic mean to average these ratios would give greater weight to high data points than low data points because price-earnings ratios aren't price-normalized while the earnings are equalized.
Some practitioners, including Toby Tatum, have stated that that weighted harmonic mean is the appropriate averaging formula when all of the numerators and denominators in an array of ratios are different.
Q: Can you provide an example of computing the average (mean), harmonic mean, and weighted harmonic mean?
A: Below is an example of computing the mean, harmonic mean, and weighted harmonic mean using a set of comparable companies:
Comps | Selling Price | Cash Flow | SP/CF Multiple | |||
A | $365,842 | $136,508 | 2.7 | |||
B | $258,951 | $159,876 | 1.6 | |||
C | $753,159 | $258,963 | 2.9 | |||
D | $589,122 | $101,698 | 5.8 | |||
Average (mean) = (2.7 + 1.6 + 2.9 + 5.8) ÷ 4 = 3.3 | ||||||
Excel function is =AVERAGE | ||||||
Harmonic mean = 4 ÷ ((1 ÷ 2.7) + (1 ÷ 1.6) + (1 ÷ 2.9) + (1 ÷ 5.8)) = 2.7 | ||||||
Excel function is =HARMEAN | ||||||
Weighted harmonic mean = ($365,842 + $258,951 + $753,159 + $589,122) ÷ (($365,842 ÷ 2.7) + ($258,951 ÷ 1.6) + ($753,159 ÷ 2.9) + ($589,122 ÷ 5.8) = 3.0 | ||||||
There is no Excel function |
Now, let’s take a look at another example and see how the averages change if our fourth company, Company D, becomes a greater outlier:
| Selling Price | Cash Flow | SP/CF Multiple | |
A | $365,842 | $136,508 | 2.7 | |
B | $258,951 | $159,876 | 1.6 | |
C | $753,159 | $258,963 | 2.9 | |
D | $589,122 | $55,698 | 10.6 | |
Average (mean) = (2.7 + 1.6 + 2.9 + 10.6) ÷ 4 = 4.4 | ||||
Harmonic mean = 4 ÷ ((1 ÷ 2.7) + (1 ÷ 1.6) + (1 ÷ 2.9) + (1 ÷ 10.6)) = 2.8 | ||||
Weighted harmonic mean = ($365,842 + $258,951 + $753,159 + $589,122) ÷ (($365,842 ÷ 2.7) + ($258,951 ÷ 1.6) + ($753,159 ÷ 2.9) + ($589,122 ÷ 10.6) = 3.2 |
Q: Can you provide another example of the arithmetic average (mean), harmonic mean, and weighted harmonic mean?
A: The below paraphrases examples provided by Toward Data Science and The Chemical Statistician.
Consider taking car trip where you drive for 240 miles at 2 different speeds:
- 60 miles/hour for 120 miles
- 40 miles/hour for another 120 miles
You may intuitively apply the arithmetic average for this trip and conclude the average speed is 50 miles/hour: (60 mph + 40 mph) ÷ 2 = 50.
But consider again: because you travelled faster in one direction, you covered those 120 miles quicker and spent less time overall traveling at that speed, so your average rate of travel across your entire trip’s duration is not the middle point between 60 mph and 40 mph, it should be closer to 40 mph because you spent longer traveling at that speed.
The average speed for your trip (the harmonic mean) is:
Average speed = 2 ÷ ((1 ÷ 60) + (1 ÷ 40)) = 48 miles/hour
Notice that the speed for your 2 trips has equal weight in the calculation of the harmonic mean – this is valid because of the equal distance travelled at the 2 speeds. If the distances you traveled were not equal, you would then use a weighted harmonic mean instead.
Now, consider you take a car trip where you drive 240 miles at 2 different speeds and for 2 different distances:
- 60 miles/hour for 100 miles
- 40 miles/hour for another 140 miles
Then the weighted harmonic mean of your speeds (i.e. the average speed of your whole trip) is:
Average speed = (100 + 140) ÷ ((100 ÷ 60) + (140 ÷ 40)) = 46.45 miles/hour
Q: Are BIZCOMPS balance sheet data at net book values or market values? The definition sheet defines FF&E as "estimated value."
A: 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.
Q: It looks like there are a number of restaurant deals that have a selling price less than the FFE and in some cases the sale price represents an 80% discount from the value of the FFE. It also looks like there are also several where the sale price is equal to the FFE. Can you please explain why the company isn’t selling for more than the assets?
A: Operating in the food service industry can be a risky business. Many of these businesses never really launch or develop 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 prior FAQ and 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" (a machinery and equipment (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.
Q: What currency is being used with regards to the Canadian transactions in BIZCOMPS?
A: All of the Canadian transactions in BIZCOMPS are being reported in Canadian dollars. The BIZCOMPS advanced search page allows the user to search by the country field. To search for Canadian transactions only, simply select “Canada” in the country field. To search for U.S. transactions only, select "United States" in the country field. To search for both United States and Canadian transactions, select “all.”
Q: In the BIZCOMPS database, are the SDE and sales figures used the most recent 12 month period or are they projected/forecasted figures?
A: 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.
Q: Would you please explain the "coefficient of variation" and how we should utilize and interpret each calculation?
A: The coefficient of variation = standard deviation/mean (the mean is also known 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.
Q: How is seller’s discretionary earnings (SDE) adjusted for a situation where there is more than one working owner?
A: 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.
Q: I have a question regarding the terms information shown in the BIZCOMPS data. For example, if the terms were 20% down, 8%, 5 years, is there any way to ascertain whether the loan is interest only or fully amortized? I am trying to convert these selling prices to their cash equivalency.
A: In almost all cases you can expect the loan to be fully amortized. That is the standard way these businesses are purchased.
Q: I am reviewing transactions that have terms specified along the sale price, e.g. a sale price of $265,000 with a 32% down and terms of "5 years @10%". Would that indicate (1) the buyer put $84,800 down ($265,000 x 32%) and will pay the rest over 5 years, with interest and principal payments that total $180,200 ($265,000 x 68%) OR (2) the buyer put $84,800 down ($265,000 x 32%) and will pay $180,200 ($265,000 x 68%) over 5 years with interest accruing on the $180,200 at 10% which would effectively mean that the seller received more than the sale price of $265,000.
A: (2) is the correct answer.
Q: Are the following items included or excluded from the sale price?
- Non-Compete Agreements
- Consulting Agreement
- Land
- Buildings
A: 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.
Q: Does the BIZCOMPS sale price relate to the business' equity only or does it include assumed liabilities (and hence, relating to the total invested capital)?
A: 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."
Q: How are liquor licenses treated in the BIZCOMPS database? Do the transactions in BIZCOMPS include, or exclude, liquor licenses?
A: Generally, all assets necessary to generate the discretionary earnings are included in the sale of a business. Liquor licenses are simply another required license, just like 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.
Q: I know the general meaning for inventory and I understand that BIZCOMPS excluses this value from the sales price. In a rental business, such as a boat rental business, should the market value of the boats be added to the sale price to arrive at an actual value for the business or would the sale price shown in BIZCOMPS already the market value of these assets?
A: 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.