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IS DETAILED AND VERIFIED BUSINESS SALE PRICE DATA IMPORTANT?

Comparable Small Business Sale Prices Are Not Reliable.

Brokers and other business valuators seem to believe in the John Chretien quote.

“A proof is a proof. What kind of a proof? It's a proof. A proof is a proof. And when you have a good proof, it's because it's proven”.
-Jean Chretien

“There are three types of lies -- lies, damn lies, and statistics.”
-Benjamin Disraeli

Without a meaningful way to calculate intangible assets, valuers typically take another easy way out. They buy data from data brokers and render it into what they call “Comparable Business Sale Prices”.

I believe the sale price data they buy is not incorrect but in most cases is inadequate in depth to suggest the comparable business is actually comparable.

I am not suggesting business sale price data is incorrect. My concern is the lack of intangible asset depth in the data collected, and the way valuators use business sale price data without knowing if the intangible asset components are truly comparable.

Let me know how can I help you.

(416) 639-6127 eric@pin.ca


NOTE HOW THE INFORMATION GATHERING DIFFERS BETWEEN 25 FACTORS AND THE INFORMATION GENERALLY AVAILABLE IN THE COMPARABLE SALE PRICE DATA THAT IS BEING SOLD.

25 Factors Methodology

Regularly Offered Comparable Sale Price Data

Purpose
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Purpose
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

History
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

History
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Financials
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Financials
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Return on Investment (ROI)
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Return on Investment (ROI)
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Liquidity
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Liquidity
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Cost of Liquidation
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Cost of Liquidation
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Hard Assets
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Hard Assets
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Utility, Sustainability, and Scalability
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Utility, Sustainability, and Scalability
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Research & Development (R&D)
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Research & Development (R&D)
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Processes, Procedures, Systems, and Documentation
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Processes, Procedures, Systems, and Documentation
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Shareholder Agreement
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Shareholder Agreement
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Management Capability, Workforce, and Intellectual Property
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Management Capability, Workforce, and Intellectual Property
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Client Base
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Client Base
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Supply Chain
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Supply Chain
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Distribution Network
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Distribution Network
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Marketing (Advertising, PR, Brand & Crypto Promotion)
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Marketing (Advertising, PR, Brand & Crypto Promotion)
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Dominance in the market
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Dominance in the market
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Industry benchmarks (averages)
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Industry benchmarks (averages)
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Terms of lease
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Terms of lease
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Terms of Sale
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Terms of Sale
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Minority Interest
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Minority Interest
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Special Interest Purchaser
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Special Interest Purchaser
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Geopolitical considerations
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Geopolitical considerations
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Risk
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Risk
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

Opportunity
Always taken into consideration.
There is always a direct conversation with the owner or one of the significant stakeholders.

Opportunity
Often lacking depth and seldom if ever a conversation with the seller to find details of the sale. Was there price consideration for family or friends or employees? Was there financing at fair market. How much of the sale was inventory? How were the intangible assets valued? How were the tangible assets valued? Who viewed the documents?

We have additional damning information that was sent to us that shows the inadequate quality of the sale price data that is being sold to the business valuation industry worldwide. Even a video. Available to a court upon request.

Comparable Sales prices are legitimate factors when one is valuing tangible assets such as farm machinery, construction equipment, restaurant equipment, and residential housing in similar areas where there are many recent sales to use for price comparison. Unverified comparable sale prices for business valuations should never be used in an Income Tax Act compliant business valuation. The type of information a valuator would need to establish a true “comparable sale price” is usually very private information and I highly doubt families and private businesses would release it.

If you were comparing 6 oil and gas drilling companies each doing in the 10 Million dollar range a year in sales within the same geographic location and province or state with the same rules and regulation; then the comparisons between the public and private company could be similar and likely a good comparable. This is a far stretch from what the data sellers are offering.

If my client was facing one of the standard valuations produced by most of the current business valuators in Canada using unverified sale price data; this is the recommendation I would make to their lawyer.

  • I would suggest that my client’s lawyer question any data used in an opposing valuation using “comparable sale price data” to see how all parts of that data was collected and verified in calculating market value.

(416) 639-6127 eric@pin.ca

WHY do the big multinational accounting firms and their followers like to use business sale price data in their valuations for private companies?

Because it is easy money.
Valuation firms buy the “comparable business sale price data”
They have accounting people with little or no business experience apply math formulas to the “sale data” they purchase and voila.
This is how many business valuation prices are derived.

Comparable Sale Price adequacy in 1975 might have been acceptable, but certainly not in 2021.

  • Intangible assets in 1975 = 17%
  • Intangible assets in 1985 = 32%
  • Intangible assets in 1995 = 68%
  • Intangible assets in 2005 = 80%
  • Intangible assets in 2015 = 84%
  • Intangible assets in 2020 = 90%

The Bottom Line:
“Comparable Sale Prices” must honestly be “comparable” CRA could drive a truck through a valuation based on incomplete, non verified data without depth. Clients should not want to be there.



DO AUCTIONEERS UNDERSTAND FAIR MARKET VALUE?

CPPA and Auctioneers.

CPPA stands for Canadian Personal Property Appraiser. This group was formed by a group of mostly AUCTIONEERS back in 1995 so that they could have a formal and documented format to use that followed the Uniform Standards of Professional Appraisal Practices that could be accepted in court. Experience was the key factor. Most business people would agree that auctioneers know a lot more about real time, on the ground, tangible asset value, than any other group or profession. I personally held an auction license in the early 1980’s

Nobody goes to the auction industry for tax advice.
Why would you go to your tax advisor to find fair market value on used equipment?

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DIVORCE, DISPUTE, SALE, PURCHASE, CRA 85 & 86