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Home » Business And Finance Articles » Whats It Worth

What's It Worth?

Sound financial business planning means taking ongoing assessment steps looking at the business from multiple perspectives including capitalization, expansion, menu concepts, cash flow and even an exit strategy. Whether you are a chef dreaming of your own restaurant, the head of a family business discussing succession, an independent considering retirement or you are thinking about buying or selling, determining the business market value is a necessary process for success.

Adjust Cash Flow

To determine the profitability value a business falls into, it is necessary to determine the Adjusted Cash Flow of that business. The Adjusted Cash Flow is equivalent to its earnings before interest, depreciation, and taxes (EBIDT in accounting terms), plus additions or subtractions for owner's salary, discretionary, single occurrence, or non-cash expenses. Once a thorough analysis of the financial information has been completed, and the Adjusted Cash Flow determined, the category of Market Value is defined.

In general, a privately owned single or small (1-3) multi-unit business will fall into one of the three profitability categories:

• Positive Cash Flow
• Break Even
• Asset Sale

Positive Adjusted Cash Flow

This category will generally represent the highest Market Value of an on-going business. In this situation the business is profitable and established. The buyer is purchasing a combination of the historical cash flow, fixed assets, operational assets (trade name, concept, menu, etc.) and goodwill. The Market Value for businesses in this category is based on a multiplier of the Adjusted Cash Flow, that ranges between two (2) and five (5) times Adjusted Cash Flow. A second value is determined by using a multiplier of Gross Sales (net of sales tax) between 30% and 40%. Business value is generally somewhere within the range of these two numbers. A sophisticated buyer expects that the price they pay would net an annual return on investment between 20% and 50%.

EXAMPLE: Adjusted Cash Flow $ 65,000 x 3.75 = $243,750
Gross Sales 725,000 x 35% = $253,750

This business would have a value of approximately $250,000.

Break Even

In this category, the business is marginally profitable or losing money. In this type of transaction, the buyer is more interested in fixed assets, location, lease terms, and the cost of converting the existing business to their intended use. In Break Even transactions, Market Value is determined by combining the value of furniture, fixtures, and equipment (including consideration for installation), leasehold rights, tenant improvements, with some consideration for gross revenues. Break Even Market Value is sustainable only if the business is operational, and the owner has the financial ability to continue operating until the sale is closed.

Asset Sale

This category is comprised of closed businesses or businesses that are experiencing extreme circumstances. An extreme circumstance may include a seller who does not have the financial means to continue operating. It may also be a secured creditor or landlord whom has had to repossess a business, or it may include a business owner being forced to sell for reasons beyond their control. Any of these situations create a severe disadvantage to the seller, and in turn has a dramatic effect on the Market Value. In these situations, value drops to that of auction value for the fixed assets, plus whatever premium might be negotiated for location, leasehold rights, and the fact that the equipment is in place and operational.

Other Considerations

In addition to the cash flow, tangible and non-tangible assets of the business will influence Market Value. These tangible and non-tangible assets may include Furniture, Fixtures and Equipment; Leasehold rights; and Books and Records. Although not quite as important as profitability, these other assets will directly affect Market Value.

Whether you are evaluating a purchase price, planning for succession or positioning your business for sale these other assets should be considered. But is should always be remembered that the bottom line for determining the actual value of your restaurant business is the simple answer: what a willing and able buyer agrees to pay!

And here is another random article you might be interested in...

Foreclosures - How To Invest Successfully

If someone is about to lose their home to foreclosure, then you can guarantee they're feeling stressed. They're probably being bombarded by calls and letters from creditors, and for many people it all becomes too much to handle. They close their eyes and hope it will all just go away.

Reality is that it won't, and as an investor interested in buying foreclosures, the hardest part can be convincing the homeowner that they really are going to lose their house unless they do something about it. It can also be difficult to convince them that you really are trying to help them, even though you are helping yourself make a profit at the same time.

When you're dealing with foreclosures, time is of the utmost importance. You need to have enough time to bail out the homeowner and take over the property before it's too late. That's why it can be a good idea to subscribe to a foreclosure listing service - you get access to listings at the earliest possible time, and don't have to use your valuable time looking for potential foreclosure properties from other sources.

Many people facing foreclosure have spoken to an attorney, and are convinced that bankruptcy is their only option. In most cases this isn't true, but attorneys tend to stick to what they're familiar with, which is bankruptcy, rather than mentioning other possibilities such as:

- Sale by assumption
- Deed in lieu
- Straight sale
- Foreclosure presale
- Compromise sale
- Short payoff
- Workouts
- Assignment
- Injunctions

There are still more options than these, which shows that bankruptcy definitely isn't the only choice for the homeowner. When you're dealing with a homeowner in foreclosure, make it clear that you're offering an alternative to bankruptcy. Find out whether they really understand what bankruptcy will do to their credit history and how it will affect their future.

If you're serious about buying foreclosure properties, then you need to become familiar with everything that's required in the process, and check everything for every property you consider. These items include:

- Loan and mortgage documents
- Loan amount, monthly payment, and interest rate
- Any outstanding taxes
- Existing insurance policies
- Any other liens or judgments

Make sure you have enough information to complete all the necessary tasks before the foreclosure occurs. If there's not enough time, don't even bother starting. Having said that, learn as much as you can about ways to delay foreclosure, and help the homeowner to implement them all. If may just give you enough time to take over the property before the foreclosure auction.

Above all, focus on creating a solution where everybody wins. It's never an easy time for the homeowner, so be prepared for plenty of anger, frustration and resentment - some of which may be directed at you. Walk away if it's obvious the person doesn't want to work with you. Find someone who is interested in finding a solution, show empathy for their situation, put together a strategy to get the best possible result for them, and before long you'll find yourself with a good portfolio of investment properties.