Posted 07-31-2008 12:20 pm by
Businesses are sold primarily on cash flow, but calculating the cash flow is not as simple as it seems.
Small business owners often minimize the amount of net profit shown on their tax returns in order to minimize their tax obligations. During a buyer’s due diligence process, he or she will probably examine the corporate tax returns. What happens when the buyer sees minimal, or perhaps even a negative, net profit?
A good business broker should help you reconstruct, or recast, the company financials to show what the owner’s “true” profits are. This process is critical and needs to be done correctly, because buyers may misinterpret the owner’s true cash flow and be scared away. Most small business buyers are first-time business buyers, and having the business’s true cash flow presented logically will help them make a more educated decision.
The mechanics of calculating the true cash flow are too complex for the discussion of this blog. Many business brokers offer free business valuations, and business owners are well advised to obtain a confidential business valuation in order to decide whether the business is worth selling.
---Written by Oliver Wu
Oliver Wu | Advantage Commercial Brokers
The Commercial Broker for
Small Business Owners in Puget Sound
Direct: (425) 785-6608
Office: (425) 651-4242 ext. 103
Fax: (425) 882-2547
E-mail: oliver@acbrokersinc.com
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