Valuing a business when no market comps are available

One of the key business valuation techniques is comparing your business to recent sales of similar companies. This relies on the valuation multiples derived from business selling prices and financial performance measures of the companies sold. Usually, these multiples are based on the business earnings or asset values, e.g. revenues, discretionary cash flow, EBIT or EBITDA, total business assets and the like.

So far so good. If your industry sector has plenty of recent business sales that are captured in public or private sources of data, you can get your market comps to do the comparison. The more business sales the better since you can develop a decent set of valuation multiples that are statistically reliable.

But what if your business is unique enough so the comparison is difficult or impossible because similar companies do not sell often or such sales go unreported?

Here are a couple of suggestions you can use:

• Call similar businesses you know. Business owners may be aware of the likely prices.
• Contact business brokers that specialize in your industry. Often they keep their own data and may be willing to advise you.
• Check with an industry group. They may help you directly or refer you to a business consultant with the knowledge of the market place for your type of business.
• Contact a vendor that sells equipment or supplies to companies like yours.

If none of these sources have the answer you are looking for, then the market comparison may not be a good approach to value your company. You can still come up with a good estimate of your business value by using the various methods based on the asset and income approaches. These types of valuations do not call for a market comparison. Instead, your valuation is based on the direct assessment of your company value.

See Valuation Tour