Category: Reviewing Financials

While this may sound like an odd question, rest assured you will encounter arguments for both answers while you're in the process to buy a business. I'm sure you've heard the saying, "There's no such thing as a dumb question."…

It can be difficult to cultivate great small business lessons from multi-billion dollar companies or executives however, one of the greatest stories I ever heard about financial statements was Michael Eisner admitting that he had no idea how to read…

If you spend any time at all looking at businesses for sale, I guarantee you will run across a broker or seller (or several) who will only release financials on a business after you submit, and the seller accepts your…

There’s an old expression, “you can put lipstick on a pig, but it’s still a pig”. That is exactly how I view many of the items sellers add-back to their financials to pretty up their businesses for sale. The reality…

Question: I'm interested in buying a business some day, but I have a question about return on investment calculations. When calculating owner benefit/cash flow, do you subtract out a reasonable salary for the owner first and keep everything else that…

Question: What is a common practice for dealing with accounts payable/receivable when purchasing a business? Answer: In nearly all small business sales, the seller will retain the cash and accounts receivables, they will pay off the payables, and deliver the…

Question: If you buy a business and you're getting a loan, how much capital should you have available until the business starts generating income? For example, if I have $100,000 should I be looking for a business that's $50,000 keeping…

What exactly does the term "Cash Flow" mean? GREAT question!! Cash flow is probably the most frequently misused accounting term I can think of. Cash flow is NOT profit. First understand that "cash flow" as a term for valuations is…

Question: In determining the value of a business, how important is it to consider the earnings percentage - i.e. earnings as a percentage of overall revenue? All things equal, if I'm looking at businesses with a certain amount of earnings,…

Q: When you say that taxes can be added back to get a "net profit" number would that also include sales taxes for a retail business? A: You bring up an excellent point. When you add back taxes, along with…