Notes of Explanation:
- TBS = “To Be Suggested”
- Seller’s Adjusted Profit
The Seller’s Adjusted Profit is a calculation showing the cash flow generated by the Business for the most recent tax year, unless otherwise indicated, by adding back to the net profit those costs that are discretionary to the Seller. These costs could include the owner’s salary and benefits, interest paid on the seller’s notes/debts that are not assumed by the buyer, non-cash expenses such as depreciation (in appropriate situations) and amortization, and certain non-recurring or unusual expenses. Details of the Adjusted Profit calculations are available in each presentation package and in our files.
“An Economic Basket”
Another way of viewing the Seller’s Adjusted Profit is as the historic economic basket of benefits available to the new owner so he can:
- Pay himself an appropriate wage commensurate with the skill required to manage the business.
- Service any debt incurred to purchase the business.
- Receive a reasonable rate of return on the down payment invested. (The appropriate rate of return depends on market conditions and the size of the business. For smaller transactions the rate of return on investment is not usually a significant factor in the valuation.