Business Transaction Patterns
An analysis of Real-World Business Transaction Data
About this Book
Transaction Patterns is an extremely valuable reference book for both the business appraiser, the business broker and anyone else wanting to know the statistical details of a business sale. The data has been carefully compiled from the BIZCOMPS database, one of the the foremost small business sale transaction data bases in the United States. This reference tool has exceptional value to appraisers and brokers in two very different ways:
1. It presents conclusions from an analysis of the entire BIZCOMPS database that are valuable for citing in small business appraisal/valuation reports in support of appraisal conclusions. The data may also be used in legal proceedings relating to justification of business value.
2. It shows techniques for the appraiser to conduct analysis on any subset of the data that may be most relevant to a particular small business. In fact, just about half of the data deals with results of statistical analysis that he has performed on the entire BIZCOMPS database or selected subsections of it, often categorized by industry. The second half of the book is a basic primer on applying and interpreting statistical analysis in estimating values for small businesses.
The book is easy to follow, and all of the conclusions are supported by extensive and very clear tables, graphs and charts. Because the database used is BIZCOMPS, the operating financial variables are revenues and discretionary earnings (normalized pre-tax income plus interest), noncash charges and all compensation to one owner-operator, called Sellers Discretionary Cash Flow [SDCF].
Here's an overview of what you'll find in the Transaction Patterns Chapters:
Chapter 1 is a superb introduction to the concept of transaction patterns and presents some summary data relating to selling price multiples that alone is worth the price of the book!
Chapters 2 and 3 address the effect of seller financing on the price paid for a business. The author addresses the question of converting the deal price on terms to a cash-equivalent price. For example, his analysis demonstrated that the smaller the down payment, the higher the discount rate. A conclusion for a rate at which to convert seller notes to a cash equivalent value is provided. He then gives conversion tables with interest from 8 to 12%, down payment 10 to 90%, and terms of one to 20 years.
Chapter 4 addresses long-term trends and multiples not affected by the market. Very important conclusions based on data for the 11-year period 1989-99 are presented.
Chapter 5 addresses the percentage of purchase price allocated to goodwill, and breaks it down by major industry.
Chapter 6 examines the effect of business size (sales and profits) on selling price.
Chapter 7 looks at how long it takes for a small business to sell after first being offered in the open market.
Chapter 8 addresses the transaction value drivers and examines their relative importance to one another and the overall transaction.
Chapter 9 looks at the use of statistical estimation to estimate probable business selling prices.
Chapter 10 examines some basic statistical concepts for the reader
About the Author
Toby Tatum is an active business broker and business appraiser and is a member of the International Business Brokers Association from which he has earned the designation Certified Business Intermediary and he is a member of the Institute of Business Appraisers from which he has earned the designation Certified Business Appraiser.
Mr. Tatum is an experienced speaker and author on topics including the selling and buying of business, business management and strategic planning. He has published articles in newspapers and trade journals, and he is a former columnist for the Reno Gazette-Journal where he wrote column about buying, selling and valuing small business. In addition to Transaction Patterns, Mr. Tatum has authored the book, Anatomy of a Business Purchase Offer.
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