| Adjust Cash FlowTo determine the
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| | value of furniture, fixtures, and
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| profitability value a business falls
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| | equipment (including consideration for
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| into, it is necessary to determine the
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| | installation), leasehold rights, tenant
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| Adjusted Cash Flow of that business. The
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| | improvements, with some consideration for
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| Adjusted Cash Flow is equivalent to its
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| | gross revenues. Break Even Market Value
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| earnings before interest, depreciation,
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| | is sustainable only if the business is
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| and taxes (EBIDT in accounting terms),
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| | operational, and the owner has the
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| plus additions or subtractions for
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| | financial ability to continue operating
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| owner's salary, discretionary, single
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| | until the sale is closed.Asset SaleThis
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| occurrence, or non-cash expenses. Once a
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| | category is comprised of closed
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| thorough analysis of the financial
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| | businesses or businesses that are
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| information has been completed, and the
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| | experiencing extreme circumstances. An
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| Adjusted Cash Flow determined, the
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| | extreme circumstance may include a seller
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| category of Market Value is defined.In
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| | who does not have the financial means to
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| general, a privately owned single or
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| | continue operating. It may also be a
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| small (1-3) multi-unit business will fall
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| | secured creditor or landlord whom has had
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| into one of the three profitability
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| | to repossess a business, or it may
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| categories:Positive Cash Flow
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| | include a business owner being forced to
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| Break Even
| |
| | sell for reasons beyond their control.
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| Asset SalePositive Adjusted Cash
| |
| | Any of these situations create a severe
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| FlowThis category will generally
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| | disadvantage to the seller, and in turn
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| represent the highest Market Value of an
| |
| | has a dramatic effect on the Market
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| on-going business. In this situation the
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| | Value. In these situations, value drops
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| business is profitable and established.
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| | to that of auction value for the fixed
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| The buyer is purchasing a combination of
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| | assets, plus whatever premium might be
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| the historical cash flow, fixed assets,
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| | negotiated for location, leasehold
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| operational assets (trade name, concept,
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| | rights, and the fact that the equipment
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| menu, etc.) and goodwill. The Market
| |
| | is in place and operational.Other
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| Value for businesses in this category is
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| | ConsiderationsIn addition to the cash
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| based on a multiplier of the Adjusted
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| | flow, tangible and non-tangible assets of
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| Cash Flow, that ranges between two (2)
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| | the business will influence Market Value.
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| and five (5) times Adjusted Cash Flow. A
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| | These tangible and non-tangible assets
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| second value is determined by using a
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| | may include Furniture, Fixtures and
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| multiplier of Gross Sales (net of sales
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| | Equipment; Leasehold rights; and Books
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| tax) between 30% and 40%. Business value
| |
| | and Records. Although not quite as
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| is generally somewhere within the range
| |
| | important as profitability, these other
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| of these two numbers. A sophisticated
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| | assets will directly affect Market
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| buyer expects that the price they pay
| |
| | Value.Whether you are evaluating a
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| would net an annual return on investment
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| | purchase price, planning for succession
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| between 20% and 50%.EXAMPLE:Adjusted Cash
| |
| | or positioning your business for sale
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| Flow $ 65,000 x 3.75 = $243,750Gross
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| | these other assets should be considered.
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| Sales 725,000 x 35% = $253,750This
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| | But is should always be remembered that
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| business would have a value of
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| | the bottom line for determining the
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| approximately $250,000.Break EvenIn this
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| | actual value of your restaurant business
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| category, the business is marginally
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| | is the simple answer: what a willing and
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| profitable or losing money. In this type
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| | able buyer agrees to pay!Written by Monte
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| of transaction, the buyer is more
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| | Zwang of Steele Development Corporation,
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| interested in fixed assets, location,
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| | a consulting firm specializing in
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| lease terms, and the cost of converting
| |
| | business development and financial
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| the existing business to their intended
| |
| | strategies. You can reach Steele
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| use. In Break Even transactions, Market
| |
| | Development by calling 206.878.
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| Value is determined by combining the
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| |
|
