The market approach stands out for two primary reasons. First, it is the preferred valuation method among appraisers, valuation analysts, and the IRS. Second, it is the most widely accepted approach among buyers and sellers because it mirrors the familiar real estate model of using comparable sales. When sufficient comparable transactions exist and the valuation is executed properly, this method gives clients a high degree of confidence in the results.
For business brokers and M&A intermediaries, the market approach is one of the most powerful tools available for establishing credibility and helping clients understand value, assuming the underlying data is selected and applied correctly.
When I joined my father’s firm, National Business Brokers, Inc., after earning my CPA in 1988, I asked where I could find comparable business sales so I could value companies the same way homes are valued. He laughed and told me no such database existed. Technically, he was mistaken. The IBA database did exist, but at that time it was poorly vetted and of limited value.
Everything changed in 1989 when I met Jack Sanders, who was launching a new database that would become BIZCOMPS. I was so enthusiastic about the concept that I pushed our brokers to submit every eligible deal. Jack and I became lifelong friends, and I continued contributing to BIZCOMPS for decades.
Later, I developed a strong professional relationship with Adam Manson of BVR, which operated Pratt’s Stats. I became a frequent contributor, earning awards, including an iPad, for submitting a high volume of quality comparables. When Pratt’s Stats was rebranded as DealStats, I was honored to be selected as the business broker/M&A intermediary to present the online demonstration for its launch.
I also regularly use ValueSource Market Comps (formerly IBA Comps), which has significantly improved its data quality over the past decade, and PeerComps, which contains highly vetted SBA lender data.
Jack Sanders shared two PowerPoint presentations with me, one comparing the major databases and another explaining how to use BIZCOMPS. I narrated both and made them available on my YouTube channel, Business Broker Professor.
Although the comparable company counts in the comparison presentation are now outdated, the underlying concepts remain fully relevant.
As a member of the CABB Education Committee, I worked with fellow committee members, including two former CABB presidents, to revise CABB 201: Advanced Recasting and Valuation. My role included securing temporary student access to DealStats and BIZCOMPS and producing two instructional videos demonstrating how to use each database. Because ValueSource Market Comps functions similarly to BIZCOMPS, a separate tutorial was unnecessary, and PeerComps provides its own. The links to the videos are provided below for convenience:
To use comparable sales databases effectively and produce reliable valuation results, three essential steps must be followed.
Brokers and intermediaries must be proficient in calculating Seller’s Discretionary Earnings (SDE) and/or EBITDA. IBBA and CABB both offer training on analyzing tax returns and financial statements to determine these metrics. Each database defines SDE and EBITDA slightly differently, so users must understand those distinctions.
A critical first step is identifying the correct NAICS code. Although NAICS codes appear on tax returns, they are often incorrect, which can compromise the entire analysis. Using the wrong code leads to a classic “garbage in, garbage out” problem.
You can verify the correct code by:
Once the correct NAICS code is established, narrow the sample by revenue size. For example, when valuing a restaurant generating $500,000 in revenue, an appropriate range might be $100,000 to $1 million. The goal is to create a sample that is large enough to be meaningful but excludes companies that are disproportionately large or small.
A minimum of six comparables is required, though 10–30 is ideal. You can further refine the sample by SDE or EBITDA size. After refining, remove extreme outliers and test the sample statistically. A valid sample typically exhibits a coefficient of variation between 0.30 and 0.40.
Each database provides the relevant multiples, such as MVIC to SDE or MVIC to EBITDA, within its sample output. The broker must then choose which multiple to apply, typically the median, harmonic mean, or weighted harmonic mean. I generally rely on the median multiple because it is less affected by outliers.
Next, determine whether to apply the multiple to a simple average of historical SDE/EBITDA or to a weighted average that places greater emphasis on recent performance. The objective is to estimate a future benefit stream that reasonably reflects the company’s expected performance. Buyers are ultimately purchasing future cash flows, commonly referred to as the Estimated Future Benefit Stream.
If multiple databases are used, determine which multiples and resulting values are most appropriate and whether to average them or rely on one or two preferred sources. The CABB 201 Excel tool facilitates this process by allowing users to enter multiples from all four databases and compare results. This stage relies heavily on the broker’s professional judgment and experience.
Valuation results can be reported using franchise brokerage software, custom tools, or PeerComps’ report generator (available to subscribers). One of the strengths of the market approach is that it produces multiple comparable-based indicators and a clear range of potential values. This allows the broker to determine the Most Probable Selling Price (MPSP) for the business.
Both sellers and buyers appreciate this outcome, and the resulting valuation is typically difficult to dispute because it is grounded in real-world comparable sales. In most cases, this process solidifies the MPSP and reinforces your credibility as a knowledgeable, data-driven professional. In my 35-year career, I have encountered very little resistance to this methodology.
Brokers should strongly consider charging for this valuation service and the accompanying report. This work requires significant time, expertise, and often subscription costs for comparable sales databases.
Contributors to DealStats and BIZCOMPS may receive complimentary access, and ValueSource Market Comps is included with IBBA membership. PeerComps, however, requires a paid subscription.
Charging a fee, even a modest one, enhances your professionalism and increases the perceived value of the report. Even a $500 fee provides fair compensation. My own fees typically range from $800 to $1,000, though some brokers charge as much as $2,500, and the value delivered fully justifies that level.
Kent Lance Schmidt, CBI
IBBA Magazine
IN THIS ISSUE: “The Next Chapter,” Letter from the 2026 IBBA Chair. Plus, The Integrated Deal Platform, The Listing That Should Never Have Been Listed, Putting AI to Work in Your Brokerage, and more!
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