MED BizBuySell<br />Understanding Business Profitability<br />Buying or Selling a Business<br />
Business Financials<br />
Adjusted Documents<br />Balance Sheet<br />Income Statement<br />Seller’s Discretionary Earnings (SDE)<br />Adjust to Bala...
Business Earnings Defined<br />
Recasting Income Statements<br />Recasting Example:<br />2008 Unadjusted Pre-Tax Profit = $58,547<br />vs.<br />2008 SDE =...
Items Typically Adjusted<br /><ul><li>Depreciation
Amortization
Interest
Officer Compensation
Family Salaries & Benefits
Officer Insurance
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Understanding Business Profitability - Buying or Selling a Business

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This presentation helps business buyers better understand how to value a business and determine how much it's worth. Income Statements and Balance Sheets frequently create confusion among buyers and this presentation offers insight to business owners who are planning to sell their business and to business buyer in the process of evaluating businesses to buy.

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Understanding Business Profitability - Buying or Selling a Business

  1. 1. MED BizBuySell<br />Understanding Business Profitability<br />Buying or Selling a Business<br />
  2. 2. Business Financials<br />
  3. 3. Adjusted Documents<br />Balance Sheet<br />Income Statement<br />Seller’s Discretionary Earnings (SDE)<br />Adjust to Balance Sheet to Fair Market Value of Assets being transferred <br />SDE = $ generated for debt service & owner wages<br />Includes Furniture, Fixtures, Equipment (FFE) & Accounts Receivables<br />Adjusted Income Statements allow Buyer to compare different businesses equally<br />Banks will lend on assets AND cash flow<br />
  4. 4. Business Earnings Defined<br />
  5. 5. Recasting Income Statements<br />Recasting Example:<br />2008 Unadjusted Pre-Tax Profit = $58,547<br />vs.<br />2008 SDE = $256,613<br />An uneducated Buyer & Seller could view profitability as:<br />$58,547 vs. $256,613<br />More than 400%!<br />
  6. 6. Items Typically Adjusted<br /><ul><li>Depreciation
  7. 7. Amortization
  8. 8. Interest
  9. 9. Officer Compensation
  10. 10. Family Salaries & Benefits
  11. 11. Officer Insurance
  12. 12. Officer Auto
  13. 13. Officer Fringe Benefits
  14. 14. Rent
  15. 15. Replacement Employees</li></ul>Sometimes Positive / Sometimes Negative<br />Each Buyer Must Adjust Accordingly<br />
  16. 16. Taxable vs. Total Cash Benefit<br />
  17. 17. Taxable vs. Total Cash Benefit<br />The present owner spent his “earnings” as shown in the previous slides. The business buyer, the above Discretionary Cash Flows are amounts to spend at your discretion.<br />This could include paying yourself a salary, servicing the debt required to buy the business and other owner benefits. <br />
  18. 18. What are the Necessary Expenses<br />… in order to generate the same level of Sales<br />
  19. 19. Understanding ADD-BACKS is Critical<br />BUYERS: Determine the revenue-dependent vs. discretionary expenses<br />SELLERS: Highlight the flexibility associated with control of your DCF<br />
  20. 20. CONTACT INFORMATION<br />MED BizBuySell<br />762.233.7020<br />Info@MEDBizBuySell.com<br />www.MEDBizBuySell.com<br />

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