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What's It Worth?

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




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