Buyers are attracted based on the Company’s Potential Cash Flow
Future cash flow potential is key information that must be understood by a prospective buyer. Frequently, current ownership has taken steps to minimize taxes or protect owner perquisites. Decisions regarding owner benefits, interest on loans or leases, use of family members in the business, etc., are legitimate areas of “seller discretionary earnings”.
A buyer must recognize the true potential of the business and use this as the foundation for establishing income potential. In addition, buyers must understand the future potential for the business. They want to buy future potential even though they might not want to pay for it.
To understand, they must understand questions like these:
- What are the "likely case" profitable sales projections?
- What new products and/or markets can be added to profitably increase sales?
- What capital expenditures are required to support the new products and markets?
- What assets are required to complete profitably and to support growth?
- What management capacity and talent requirements are required for growth?
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