Recasting Financials to determine Value

Recasting financials is one of the primary services a broker will provide when for determining value and preparing your business for sale.

Most small businesses track of their financial performance by use of balance sheets, Profit & Loss Statements, and Tax Returns.  Reporting financials this way is vital to the businesses' operation but it is not really useful when it comes to determining the fair market value of a business and its true financial earning power.  Buyer's want to acquire Cash Flow.

Potential buyers need to understand the health of a business, how the money is earned and spent and the operation's capacity for generating more positive cash flow. 

Traditional accounting works to minimize a business' tax liability which in turn, inaccurately translates the owner's true net profit.

The process of recasting a businesses' financials is very important in identifying fair market value for a business that is ready to sell.  Recasting business financials involves extensive analysis to ensure all relevant and appropriate adjustments are correctly reported. 

A business owner's compensation, bonuses, incentives, personal loans and other discretionary expenses are all common areas that are investigated when recasting financials. 

These discretionary expenses or owner benefits are to be "added back" into the net income of the business so that a prospective buyer can accurately asses the business and it's future earning capacity.  The owner has to see enough cash flow to pay himself a fair market salary and also cover any debt service for loans he may take on to acquire the business.

Additional areas of interest when determing value of the business will be assets & liabilities of the business, in particular equipment and real estate (if owned by the business).