| Accrual |
Income and expenses are recorded when
invoiced or billed |
| Adj. Net |
Adjusted Net = OB (see OB below) |
| Amortization |
This is a another method of writing off expenses over a period of
years. For example: If you buy a
business the goodwill is amortizable.
Amortization is always added back for an Asset Purchase |
| Asset Purchase |
The assets of the business are purchased including intangible
assets. Normally all assets are
received free and clear. |
| Cash Basis |
Income and expenses are recorded as the are deposited or paid |
| DCF |
Discretionary Cash Flow = OB (see OB below) |
| Depreciation |
This is not real depreciation where we replace an item that has out lived
its useful life, this is a tax term for allowing an expense write-off on
taxes for capital purchases. This
figure is always added back as an owner benefit and then the astute Buyer can
apply an estimated cost for replacement. |
| EBITDA |
Earnings before interest expense, taxes, depreciation and amortization |
| FIFO |
A means of valuing inventory at the most recent cost - First in First Out |
| FMV |
Fair Market Value: the price, expressed in terms of cash equivalents, at
which property would change hands between a hypothetical willing and able
buyer and a hypothetical willing and able seller, acting at arms length in an
open and unrestricted market, when neither is under compulsion to buy or sell
and when both have reasonable knowledge of the relevant facts. |
| Fringe Benefits |
These are defined as personal benefits that are provided by the business
to the owner that are not necessary for the business to function. Examples are: medical insurance, life
insurance, personal meals & entertainment, personal travel, &
personal auto use. |
| Inventory |
Check changes, if inventory is less than last year OB should be adjusted
down, if more adjust up. CAUTION:
Some businesses are priced without inventory included in the price. |
| LIFO |
A means of valuing inventory at lowest cost - Last In First Out |
|
Modified Cash Basis
|
Income is recorded when deposited; expenses are recorded when billed |
| MPSP |
Most Probable Selling Price: That price for the assets intended for sale
which represents the total consideration
most likely to be established between a
buyer and seller, considering compulsion
on the part of either the buyer or seller,
and potential financial, strategic, or non-financial
benefits to seller and probable buyer. |
| Net |
Equals Gross Revenue less cost of goods less all business expenses. On a small privately held company the
owner affects the net by what salary he gives himself and family
members. Net flows to the owner and
at his discretion may pocket it through draws or reinvest it in capital
improvements in the business. |
| OB |
Owner Benefits = EBITDA + owner's salary + fringe benefits + other |
| Other |
Other add backs or expenses can be one time expenses that are not
recurring, or a change in rent that may affect the income of the prospective
buyer |
| SDCF |
Seller's Discretionary Cash Flow = OB (see OB below) |
| Stock Sale |
The corporation is purchased through shares of the corporation's
stock. Normally all assets and liabilities are
included and the corporate entity remains intact. |
Organizations & Designations