Sales Price Vs. Book Or Tax Value?

Most privately held businesses keep track of their financial performances by means of balance sheets, P/Ls, and Tax Returns. This type of reporting is essential in a business' operation but it is not ideal in determining the true financial performance or the selling price of a business. Buyer's buy cash flow! Prospective buyers need to know the health of a business, how the money is being spent and the operation's capacity to generate on-going positive cash flow. Traditional financial reporting seeks to minimize a business' tax liability which in turn distorts the company's true earnings, performance or cash flow and, consequently, impacts selling price.

The process of recasting financial statements is integral in determining selling price of a business when the owner's intentions are, in fact, to sell. Recasting requires extensive investigation to ensure all relevant and appropriate adjustments are considered and correctly reflected. The objective of recasting is to examine a company's balance sheets and other financial statements and adjust them to reflect the real inherent value of the company, which in most cases greatly enhances the market value and consequently the selling price of the business.

A business owner's salary, commissions, perks, incentives, personal and discretionary expenses are all key areas that are examined when recasting financial statements. Such owner benefits are considered in determining the value of the company so that a future buyer can adequately assess the business, its cash flow, future earnings and cash flow capacity. Additional areas of interest, such as included/excluded assets & liabilities as well as fair market value of tangible assets are examined with the business owner in an effort to correctly determine the selling price of the business.

To learn more about our business valuation methods, please contact us today or call us at 877-797-2825.

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