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Florida
Capital has been evaluating businesses for over
25 years.
Major factors that
are necessary in evaluating the value of a
business are:
·
Current and historical
financials
·
Condition and value of
current assets
·
Value & determination of
salable or useable inventory (depending on the
nature of the business)
·
Present and current market
conditions related to the business that reflects
an accurate picture of the
economic reality of the business.
A major
factor in determine value of a business is
determining by historical, present and projected
cash flow. This is determined by using profit
and loss statements supported by tax return. It
is necessary to identify non-operating income
and/or expenses that may not be related to the
business.
For example, in a
small business, portions of expenses such as
travel, auto; phone, etc., maybe of a personal
nature.
Another factor in
determining accurate cash flow to a new owner is
to identify and add back to the bottom line any
non- reoccurring (one Time) expenses,
depreciation, amortization, interest expense,
etc. in order to establish accurate cash flow.
This includes identifying and taking into
consideration owners benefits.
There
are other values that can be taken into
consideration such as leases, land values, etc.
Once an accurate cash flow is determined prior
to taxes, there are rule of thumbs related to
each industry….from retail to manufacturing
there are guidelines use for placing a value on
a particular business. Other values could also
play a part in the evaluation process such as
aging account receivable, inventory adjustments
and/or management in place.
Florida Capital
generally works with seller accountant in
gathering this information.
NOTE: The
information that is used in packaging the
business for sale is also used in packaging the
business for financing a buyer.
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