What Is My Business Worth

What is My Business Worth?

Determining the value of a business is often a difficult task. It is best completed by a professional from Inflex Business Consulting and Brokerage or some other accounting professional.

Before we can determine what the market value of a business is, the financial statements derived from the business (P&L, Balance Sheet, Tax Returns) must be adjusted to include the owner’s ‘Discretionary Expenditures’ or perks. We call this ‘recasting’ or normalizing’ the statements of privately owned businesses. 

Why do this?

Simply put, the recasting of the financial statements allow the buyers a more realistic view of the future financial benefits of the company. In other words, it reflects the company’s true earning power.

Prospective buyers are interested in accurate data as well as businesses that can provide them with sufficient value. So if the figures of a business that you are selling are not perceived to be of sufficient value, then needless to say you would not be able to sell your business quickly and at the best price possible.

So what then is the business really earning? The reality is that small to medium sized businesses tend to keep their reported earnings as low as possible in order to minimize their tax liabilities. So recasting the financials brings back a level of ‘reality’ to the reported figures. This is a critical tool used in ensuring that all perks and benefits taken out by the owner(s) are ‘put back’ into the business to show the potential buyer what the business is really earning. 

The Formula...

ODE or ODCF (Owner’s Discretionary Cash Flow) is calculated as follows (simplified):

Take the  Pre Tax Net Income (from tax return or AUDITED P&L)

Add back the following:

+ Owner’s Salary

+ “Discretionary Expenses” or Perks

+ Non-Cash Expenses (eg. Amortization & Depreciation)

+ Interest Expense

+ Non-Operating Expenses

+ Non-Recurring (or one-time expenses)

= Discretionary Earnings (“DE”)

Rather than be bogged down with all of this, we at Inflex Business Consulting and Brokerage can do this for you. We provide a business valuation (we call it pricing Analysis) at significantly reduced costs relative to large accounting firms. So call or contact us today for a FREE no-obligation Discovery Call.

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