Question:
I've just begun to look for a business and I'm a bit confused. My search has been focused with online business for sale listings. Each website seems to have different terminology for the profit of the business.
Answer: Great question! You're correct;
Cash Flow simply means the cash the business had at the beginning of a period, and what they had at the end, and what happened with the difference. The figure you'll want to determine is Sellers Discretionary Cash or Owner Benefits. This is the Pretax Profit of the business + Owner's Salary/Perks + Depreciation + Interest add backs. Pay special attention to Depreciation, For capital intensive businesses, you'll have to reduce this figure by any amounts you may need to purchase additional or replacement assets in the future.
This article represents a fraction of what you’ll learn on this topic in the How To Buy A Good Business At A Great Price© series - the most widely used reference resource and strategy guide for buying a business. To learn more click here
When you reach the point of having to value a business for sale, buyers often handcuff themselves and do not even realize they are doing it. Although putting a price tag on a busin
Continue Reading >When I first entered the business brokerage world a number of years ago, a colleague at the firm told me that “every business is overpriced the day it is listed for sale”. Ofte
Continue Reading >There is usually a very healthy debate between buyers and sellers regarding each side’s calculation of the total Owner Benefits (OB) figure. First, let’s clarify what exactly i
Continue Reading >