Valuing Businesses Using Regression Analysis

CHAPTER 12Conclusion

I am convinced that there are as many appraisal methodologies out there as there are appraisers and business brokers. Sadly, it would appear that many analysts start the assignment by asking the client, “How much do you want for it?” Then, the analyst becomes creative in producing a methodology that supports the desired conclusion of value. The Internet is rife with websites offering valuation tools that one can use to estimate the value of his or her business. These website tools range in cost from less than one hundred dollars to several thousand dollars.

All this has led the appraisal profession to treat the Market Approach as the red‐headed stepchild in the appraisal industry. It seldom gets any attention, and values generated by all these methods are often discarded as irrelevant.

The Institute of Business Appraisers (IBA) began collecting market data for small business sales more that three decades ago, and Jack Sanders, the author of Bizcomps, began collecting sales data shortly thereafter. Initially, a minor amount of data was collected on each sale of a business, and there were few standards applied to the form of that data. Hence, the selling price of a business often included real estate, accounts receivable, cash, motor homes, assumed debt, and all sorts of non‐business assets. The value of cash flow submitted by brokers ranged from gross profits, EBITDA, EBIT, owner's salary, SDE, or net profit after taxes with no distinction among any of them—they ...