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LOS ANGELES/WESTWOOD, CA
10940 Wilshire Boulevard
Suite 1600
Westwood, CA 90024
Phone: (310) 208-7766 x 101
Fax: (866) 686-7851
Email This Office
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VR Business Sales|Mergers and Acquisitions
LOS ANGELES/WESTWOOD, CA
What is My Business Worth
Business is worth whatever a buyer pays for it. However, buyers will consider many factors and conditions to determine the value and worth to for them in the market place. One of the best way to for a small and main street business is the adjusted net income approach. The definition of a adjusted net income is usually defined as The amount of money the new owner “will make from the business – the true bottom line” and what the buyer of the business can expect to “clear” from the business once they own and operate it in their own way. Adjusted net income usually contains these line items below from the business financials and tax returns – these numbers are “added back” to the net income at the end of the year to obtain the “adjusted net income” of the business.
1. Owner's Salary
2. Depreciation
3. Interest
4. Amortization
5. One Time Expenses (Items like equipment, trucks, etc)
6. Owners Personal Expenses (Auto expenses, entertainment, travel)
7. Owners Pension/Retirement
8. Rent (If the real estate is being sold with the business)
There are other possible “add-backs” such as family salaries - family members that don’t actually work at the business yet magically earn a salary (and will be gone when the new owner takes over), and managers that may be replaced when the new owner completes the deal.
Remember many owners of small businesses “write-off” as many business expenses as possible to limit their tax liability at the end of the year. Many of these “write-offs” can be added back to the net income to obtain the “adjusted net income” a new owner of the business will be obtaining when they buy and take over the business.
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