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