Why Cash Flow is King When Selling Your Business

crown-312734_1280-768x424If selling a business depended on one thing and one thing only it would be; Cash Flow. Cash Flow is the main factor in determining a business’s value in the market. The term SDE (Sellers Discretionary Earnings) is just a fancy term to describe the term Cash Flow. If you want to sell your business, you can’t sell it based off how much equipment you have, or how much money you made 2 years ago, or how much money you will make this next year; rather you have to sell it based on Cash Flow.

Cash Flow is not how fast the money is coming in (being overly critical of the term “Flow” itself), but rather the bottom line that the owner receives in owner benefit from the total dollars that come through the business in a year. If you are paid $100,000 a year in your business, but it also pays for vehicles, fuel, cell phones, insurance for health, retirement contributions, charitable contributions, depreciation, meals & entertainment, etc; these all add to that $100,000 in salary to come up with a Cash Flow figure. It is the same as saying “Net benefit to the owner”, or “Sellers Discretionary Income” or “SDE”. For all intents and purposes; Cash Flow means “The bottom line”. At Peterson Acquisitions, we dig through the financials to find the cash flow by “recasting” the expenses that are truly a net benefit to the owner.

The 3 most important things in determining the value of your business:

Cash Flow

Cash Flow

Cash Flow

 

Cash is King in selling a business or buying a business. It all comes down to what that number reflects in totality to better determine what the business is doing for the owners as a whole.
Peterson Acquisitions can help you determine Cash Flow and the value of your business.