A few years ago I worked with a client who owned an appliance store that was doing about $10M in annual revenue. The business focused on large household appliances, mainly high end kitchen appliances. They had an amazing showroom and took care of clients from sales and ordering through delivery and installation. This family-owned and operated business had been serving its community since 1970. The owner approached Blue Sky for help with a possible sale of the business. She was entering reti…
Business & Market Strategy Guide...AKA B&MSG
IRS Revenue Ruling 59-60 determines the basis of fair market value. It states that fair market value is, "The amount at which the property would change hands between a willing buyer and willing seller when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having a reasonable knowledge of relevant facts."
A calculation estimating how much money someo…
Working Capital PEG
A benchmark or baseline amount of net working capital that is agreed upon by the buyer and the seller and is usually determined toward the end of financial due diligence.
The Working Capital PEG negotiated between the buyer and the seller. It is the WC amount that will be left in the business as of the date of closing.
What is negotiated? The basic formula of assets - liabilities = WC is hardly ever the calculation used when negotia…
This ratio reflects the ability to finance current operations and is a measure of the margin of protection for current creditors. This ratio also indicates how efficiently working capital is being used. A low ratio (close to zero) may indicate inefficient use of working capital. A high ratio (high positive or high negative) often signifies overtrading, creating a vulnerable position for creditors.
The capital of a business which is used i…
According to many business surveys, approximately 85% of business owners do not know the value of their largest asset, their business. This was also the case for the owner of a manufacturer who was counting on the proceeds from the sale of the business to fund his retirement.
Over the years, he had a gut feeling that the business was worth $8M but had no documentation backing up that figure. The owner was beginning to feel burnt out but continued on as usual because $8M did not fund his retire…
Seller’s Discretionary Earnings...AKA SDE
A seller’s discretionary earnings are the pretax and pre-interest profits before non-cash expenses, one owner’s benefits, one-time investments, and any non-related income or costs.
All of the cash at the “bottom line” of your financial statement is available to the business owner.
Why it Matters to You
This tool is used to help you, the business owner, make accurate comparisons between companies. SDE can so…
Losing a family member is never easy. There are so many things that need to be dealt with, funeral planning, handling financial affairs, grieving. In the midst of all of this, would you want to force your family to also deal with trying to take over or sell your business?
I have worked and spoken with many business owners who express deep pride in all of the effort and sweat equity that has gone into building their companies. Their families have been by their side over the years, supporting …
Earnings Before Interest, Taxes, Depreciation, Amortization...AKA EBITDA
EBITDA is a proxy for free cash flow. It adds back the non-cash expenses (depreciation and amortization) as well as the interest and taxes that are a consequence of management decisions. Not every management team would deploy the same capital structures, so these expenses are added back in the calculation.
A tool to evaluate a company’s performance without factoring in finance, acc…
Thinking today about how I can bring hope and inspire anyone reading this… I’m torn because I don’t want to sugarcoat the reality, but I also feel like this reset is probably the greatest thing for business in our lifetime!
You might ask, “What are you talking about?”
Well, through my eyes, at least for the short term of things…what I am seeing is that this could be the best opportunity for a business because our competitors have went in to hiding and we can use this time to capitalize on thei…
COVID-19 has changed the “new normal” for communication. Business owners are either in panic mode or taking the time to figure out what their business will look like in a post COVID-19 world. Unfortunately, the majority of business owners are in the former category. Business owners are panicking. But how do business owners get into that latter situation? The situation where they use this time to reevaluate their businesses strengths and weaknesses?
The following is a list of several tips to gen…
Showing 1-10 of 13