Seller business cash flow is one of the best tools to estimate the value of a business. The buyer should know the importance before the buyer presents an offer, or even before considering purchase of a business. Business cash flow gives an idea of what price the buyer can offer to the seller for a business. The main purpose of buying a business is to increase the buyer’s cash flow, self-sufficiency, to fulfill dreams, and to attain financial security. The prospective buyer is interested in an existing business because it is already established and running with all possible services, implemented trade secrets, and ideas to increase the positive cash flow of the business, and that has created a reputation of pride in the business.
By buying an existing business, the buyer is bypassing all the hurdles of initial setup, avoiding initial business losses, extra efforts, and is taking over a positive cash flow.
Positive cash flow is not just the adjusted net/net profit after paying all the expenses. Some sellers will show their personal insurances, mortgages, professional expenses, travel expenses, entertainment expenses, child expenses, and other related expenses as well as their salary/management fee, bonus, depreciation, amortizations, etc. All these expenses are going to be added as add backs to the net profit of the business. When you add all of these expenses and other personal expenses of the seller shown on the taxes it gives the exact cash flow of the business. It is always good idea to sit with your tax consultant and discuss all the add backs, and they will give the exact sellers cash flow of the business or seller business cash flow.
If you want to know more about the seller business cash flow and discretionary earnings, cash flow analysis, or have further questions on how to calculate the seller business cash flow, please contact us at help@bizworldusa.com, or 510-556-1600 and one of our approved third-party business appraisal/business tax professionals will contact you.