This presentation helps business buyers better understand how to value a business and determine how much it's worth. Income Statements and Balance Sheets frequently create confusion among buyers and this presentation offers insight to business owners who are planning to sell their business and to business buyer in the process of evaluating businesses to buy.

1. MED BizBuySell Understanding Business Profitability Buying or Selling a Business

2. Business Financials

3. Adjusted Documents Balance Sheet Income Statement Seller’s Discretionary Earnings (SDE) Adjust to Balance Sheet to Fair Market Value of Assets being transferred SDE = $ generated for debt service & owner wages Includes Furniture, Fixtures, Equipment (FFE) & Accounts Receivables Adjusted Income Statements allow Buyer to compare different businesses equally Banks will lend on assets AND cash flow

4. Business Earnings Defined

5. Recasting Income Statements Recasting Example: 2008 Unadjusted Pre-Tax Profit = $58,547 vs. 2008 SDE = $256,613 An uneducated Buyer & Seller could view profitability as: $58,547 vs. $256,613 More than 400%!

7. Amortization

8. Interest

9. Officer Compensation

10. Family Salaries & Benefits

11. Officer Insurance

12. Officer Auto

13. Officer Fringe Benefits

14. Rent

15. Replacement EmployeesSometimes Positive / Sometimes Negative Each Buyer Must Adjust Accordingly

16. Taxable vs. Total Cash Benefit

17. Taxable vs. Total Cash Benefit The present owner spent his “earnings” as shown in the previous slides. The business buyer, the above Discretionary Cash Flows are amounts to spend at your discretion. This could include paying yourself a salary, servicing the debt required to buy the business and other owner benefits.

18. What are the Necessary Expenses … in order to generate the same level of Sales

19. Understanding ADD-BACKS is Critical BUYERS: Determine the revenue-dependent vs. discretionary expenses SELLERS: Highlight the flexibility associated with control of your DCF

20. CONTACT INFORMATION MED BizBuySell 762.233.7020 Info@MEDBizBuySell.com www.MEDBizBuySell.com