BIZCOMPS Frequently Asked Questions (FAQs)
Thank you for visiting the FAQ page for the BIZCOMPS database. If you're unable to find the answer you are looking for, please contact us at 1-503-479-8200 and we are happy to help.
- Download PDF version of BIZCOMPS User Guide.
Q: What is the legend for BIZCOMPS data?
|Internal transaction ID number
|Standard Industrial Classification code
|Standard Industrial Classification code - General category
|North American Industry Classification System
|Products and services of business
|Annual Gross Sales
|Annual Gross Sales ($000's), normally net of sales tax
|Actual date of sale
|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
|Actual sale price ($000's), inventory has been deducted if it was included in sale price
|Asking sale price of business ($000's), does not include inventory
|SDE/Annual Gross Sales
|Seller’s discretionary earnings divided by Annual Gross Sales
|Sale Price/Annual Gross Sales
|Sale price divided by Annual Gross Sales
|Sale price divided by seller's discretionary earnings
|Down payment as a percent of sale price
|Terms of primary new or assumed loan
|Inventory at the time of sale($000's)
|Furniture, Fixtures & Equipment
|Estimate of value of furniture, fixtures & equipment ($000's)
|Rent/Annual Gross Sales
|Yearly rent divided by Annual Gross Sales
|Region or geographical location of business
|Days On Market
|Actual number of days business was on market
|Actual royalty less advertising percentage
|Number Of Employees
|Number of employees
N/A = Not Available
Q: Are there any limitations that come with a subscription to BIZCOMPS?
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: 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
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.