A buyer can argue with your earnings projections. They can push back on your cap rate. They can nitpick every add-back on your recast P&L.
What they can't argue with is what the market already paid for three bookkeeping firms just like yours last year.
That's the power of the Direct Market Data method. Instead of building a theoretical model of what your business should be worth, you look at what similar businesses actually sold for, adjust for differences, and apply the result to your own numbers. For businesses under $1M in revenue, it's the most grounded and defensible valuation approach available — and when you have three to five good comps, the accuracy typically lands within 10 to 15 percent of the actual sale price.
What Direct Market Data Actually Is
Direct Market Data is exactly what it sounds like: real selling prices for real businesses that are similar to yours. Not models. Not assumptions. Actual transactions.
Most of the data lives in two main databases. BizComps and DealStats collect small business sale data from appraisers and public filings, then let you filter by industry, revenue size, and location. A search typically runs $250 to $500. The SBA loan database publishes transaction data for free, though it's less polished.
The reason DMD is so powerful isn't complexity — it's transparency. A buyer challenging your number has to argue with the market, not with you.
The Four-Step Process
Search the databases for three to five comparable sales from the past 12 to 24 months. Three to five is the right range — fewer and you're vulnerable to outliers, more and you lose specificity. Filter by industry, revenue size, and region where possible.
Review each comp: revenue, earnings, sale price, selling multiple, and any special factors. Was it a strategic buyer? Did it include real estate? Was there an earnout? Note everything that might explain an unusual multiple.
Adjust for the differences between each comp and your business. Size, growth rate, location, customer mix, owner dependency, timing. Each adjustment typically shifts the multiple by 0.1x to 0.3x — small, incremental changes that compound.
Calculate your value by applying the adjusted multiple to your own revenue or earnings. If three comps suggest a 2.8x revenue multiple after adjustments, and you do $600K, that's $1.68M.
A Bookkeeping Firm Worked Example
You're valuing a bookkeeping firm that does $480K in revenue. Your search turns up three recent sales:
- Comp 1: $380K revenue, sold for $950K — 2.5x revenue multiple
- Comp 2: $420K revenue, sold for $1.12M — 2.67x revenue multiple
- Comp 3: $650K revenue, sold for $2.1M — 3.23x revenue multiple
Your firm is closer in size to Comps 1 and 2, which sold at 2.5x and 2.67x. You're slightly larger than both, so a small size premium is warranted. Call it +0.1x. Your adjusted multiple lands at 2.6x.
Applied to your $480K in revenue, your business values at $1.248M. Not a guess. Not a theoretical model. A number built entirely on what the market just paid for three businesses like yours.
When a buyer looks at that analysis, they can challenge your adjustments, but they can't dismiss the underlying data. That's what makes DMD defensible.
The Adjustments That Actually Matter
Every comp is a little different from yours. The adjustments that move the multiple most are usually:
Size. Larger businesses typically get better multiples because they have more operational depth. A comp at $650K shouldn't directly set your multiple if you're at $400K.
Growth rate. A comp growing 20 percent a year probably sold at a premium. If you're flat, adjust down. If you're growing faster than the comp, adjust up.
Location. A business in a thriving metro often sells for more than the same business in a declining market. Local buyer pool and capital availability matter.
Owner dependency. If the comp was a turnkey operation with a manager in place and yours runs on your back, that's a real adjustment downward.
Strategic premium. A comp that sold to a larger competitor for synergies probably paid above normal multiples. If your likely buyer is an individual or a financial buyer, adjust down.
Recency. Sales from the past 6 to 12 months are more relevant than sales from 24 months ago. Markets move.
Customer quality. Recurring revenue commands a premium over transactional. If a comp had 70 percent recurring revenue and you're at 20 percent, that's a meaningful adjustment.
When DMD Breaks Down
Direct Market Data is powerful when comps exist. It gets shaky when they don't.
DMD works best when your industry has multiple recent sales at your size, when geographic comps exist, and when your business is relatively standard — not a highly specialized, one-of-a-kind operation. A general bookkeeping firm, an HVAC service company, a dental practice — these have thick comp data.
DMD gets thin when there are only a handful of sales nationally in your industry, when your business is unusual or hard to categorize, when you've recently implemented massive improvements the comps don't reflect, or when you're dealing with a business big enough that it's more of an enterprise valuation.
In those cases, you don't abandon the market approach — you combine it with the income approach to triangulate. If DMD says $1.2M and the income approach says $1.4M, investigate the gap. Maybe your earnings genuinely justify a premium your comps don't capture. Maybe your recast is too aggressive. Either way, knowing both numbers puts you in a much stronger negotiating position than knowing one.
Garbage Comps, Garbage Valuation
One critical warning: the quality of your comps determines the quality of your valuation. Old sales, mismatched sales, or sales you can't verify give you a number that doesn't mean anything.
Use recent comps. Ideally the past 12 months. 18 months is acceptable. Older than that, market conditions have shifted too much to be reliable.
Match on size and profile. A comp twice your size or half your size isn't a comp. Neither is a comp in a fundamentally different business model — a consulting firm isn't a comp for a product-based services company.
Verify the source. Professional databases and documented transactions beat hearsay every time. "My neighbor sold his business for $2M" is not a data point you can build a valuation on.
Three to five well-matched, recent, verified comps will get you a better answer than ten weak ones.
How to Actually Access This Data
You have three practical paths. Search the databases yourself for $250 to $500 and work the raw data. Use the free SBA loan database if you're willing to do more of the work. Or work with a valuation specialist who'll search comps, run the adjustments, and deliver a preliminary value opinion for $500 to $1,000. The key is that this data is accessible — you don't need to guess at your business's value or trust someone else's number.
Torch pulls comparable sales data for your industry and size, runs the adjustments, and gives you a defensible market-based value you can bring to any negotiation.