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"gross lease value" defined  

What's It Worth?

Adjust Cash FlowTo determine thetransactions, Market Value is determined by
profitability value a business falls into, itcombining the value of furniture, fixtures,
is necessary to determine the Adjusted Cashand equipment (including consideration for
Flow of that business. The Adjusted Cash Flowinstallation), leasehold rights, tenant
is equivalent to its earnings beforeimprovements, with some consideration for
interest, depreciation, and taxes (EBIDT ingross revenues. Break Even Market Value is
accounting terms), plus additions orsustainable only if the business is
subtractions for owner's salary,operational, and the owner has the financial
discretionary, single occurrence, or non-cashability to continue operating until the sale
expenses. Once a thorough analysis of theis closed.Asset SaleThis category is
financial information has been completed, andcomprised of closed businesses or businesses
the Adjusted Cash Flow determined, thethat are experiencing extreme circumstances.
category of Market Value is defined.InAn extreme circumstance may include a seller
general, a privately owned single or smallwho does not have the financial means to
(1-3) multi-unit business will fall into onecontinue operating. It may also be a secured
of the three profitabilitycreditor or landlord whom has had to
categories:Positive  Cash  Flowrepossess a business, or it may include a
business owner being forced to sell for
Break  Evenreasons beyond their control. Any of these
situations create a severe disadvantage to
Asset SalePositive Adjusted Cash FlowThisthe seller, and in turn has a dramatic effect
category will generally represent the higheston the Market Value. In these situations,
Market Value of an on-going business. Invalue drops to that of auction value for the
this situation the business is profitable andfixed assets, plus whatever premium might be
established. The buyer is purchasing anegotiated for location, leasehold rights,
combination of the historical cash flow,and the fact that the equipment is in place
fixed assets, operational assets (trade name,and operational.Other ConsiderationsIn
concept, menu, etc.) and goodwill. The Marketaddition to the cash flow, tangible and
Value for businesses in this category isnon-tangible assets of the business will
based on a multiplier of the Adjusted Cashinfluence Market Value. These tangible and
Flow, that ranges between two (2) and fivenon-tangible assets may include Furniture,
(5) times Adjusted Cash Flow. A second valueFixtures and Equipment; Leasehold rights; and
is determined by using a multiplier of GrossBooks and Records. Although not quite as
Sales (net of sales tax) between 30% and 40%.important as profitability, these other
Business value is generally somewhere withinassets will directly affect Market
the range of these two numbers. AValue.Whether you are evaluating a purchase
sophisticated buyer expects that the priceprice, planning for succession or positioning
they pay would net an annual return onyour business for sale these other assets
investment between 20% andshould be considered. But is should always be
50%.EXAMPLE:Adjusted Cash Flow $ 65,000 xremembered that the bottom line for
3.75 = $243,750Gross Sales 725,000 x 35%determining the actual value of your
= $253,750This business would have a value ofrestaurant business is the simple answer:
approximately $250,000.Break EvenIn thiswhat a willing and able buyer agrees to
category, the business is marginallypay!Written by Monte Zwang of Steele
profitable or losing money. In this type ofDevelopment Corporation, a consulting firm
transaction, the buyer is more interested inspecializing in business development and
fixed assets, location, lease terms, and thefinancial strategies. You can reach Steele
cost of converting the existing business toDevelopment by calling 206.878.
their intended use. In Break Even



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