Separate Business Value From Owner Pay
The amount you draw from the business is not automatically its earnings. Orlando Business Brokers Edge connects sellers with a valuation partner.
A useful valuation starts with a clear explanation of profit, your work and the adjustments a buyer can verify.
Choose the earnings measure that fits the buyer
Seller discretionary earnings looks at the benefit available to one working owner. It can include documented owner compensation and certain legitimate adjustments.
Adjusted EBITDA takes a different view when the business must pay a manager to replace the owner. A buyer cannot add back all your pay and also assume your work costs nothing.
Ask the valuation partner which role the likely buyer will fill. The same company can look different to a working owner and to someone hiring a management team.
Give every adjustment a paper trail
Start with profit and loss statements that reconcile with the tax returns. Identify a specific expense, explain why it changes after the sale and retain the supporting document.
A one time expense may justify an adjustment. Recurring repairs, insurance and ordinary software costs generally remain part of running the company.
Loan proceeds and cash received from selling an asset are not normal operating earnings. Moving money from the company account to yourself also does not prove an additional profit stream.
Keep assets and proceeds in the right calculation
Discuss whether the price includes inventory, equipment and a normal level of working capital. A cash free, debt free proposal still needs those terms defined.
If the business owns real estate, value that property separately using the appropriate method. Below market rent can inflate operating earnings until the buyer adjusts for a realistic occupancy cost.
Prepare a proceeds estimate after debt, fees and taxes with your advisors. A business valuation is not a promise that the owner receives the full headline amount in cash.
Bring the open questions to a valuation discussion
You can also compare cash at closing with seller financing and prepare a business lease for buyer approval. These decisions work together when comparing a buyer offer.
Before the financial review is complete, use the filing schedule to assign agency work. Confirm the transaction advice with your own CPA and attorney.
Put your sale questions on the table
Request your free valuation discussion or call (407) 555-0183.