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How Buyers Turn Your Books Into Owner Earnings

Most owners know their sales but not their true cash flow, and Philadelphia Business Brokers Core thinks that is the best place to begin.

Here is how a buyer reads your books.

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The short version

  1. Buyers pay for profit they can prove, not for sales.
  2. Owner earnings are what one working owner could take home.
  3. Add backs must be real and explainable.
  4. Owner draws and one time income are not operating profit.

Start With Profit, Not Sales

Buyers reduce a company to one question: how much does it earn, and how many years of that will they pay for? A company with seven million dollars in sales can still sell for about two million when margins are slim.

What Owner Earnings Means

For smaller companies, buyers add up what one working owner could take home, including salary, health insurance and perks. For larger firms with managers in place, they use earnings after a market salary for the owner.

Most Main Street companies change hands at about two to three times that figure.

Add Backs Buyers Accept

An add back is a one time or personal expense removed from the statements to show the true picture. It has to be real and explainable, such as a one time legal bill or a family cell phone plan on the company books.

Extra money that happened to arrive does not count. Selling a truck or taking a loan is not operating income, and buyers catch it in diligence.

Owner Draws Are Not Earnings

Money moved from the business account to a personal account does not show up as an expense, and it is not automatically cash flow. A good recast sorts these out so a buyer sees the real number.

Cash That Never Hit the Books

Income that was never recorded cannot be proven, so buyers do not pay for it. Saving twenty percent in taxes can cost two to three times that much in lost value at a normal multiple.

Why This Matters Before You List

Buyers who discover errors in diligence start to doubt everything else. A clean recast shows a seller who knows the business, and it gives a broker honest numbers to market.

Stale items, such as a vehicle long gone but still on the balance sheet, signal weak books. Update them first.

Next Steps

Ask your CPA for three to five years of recast statements before you list. See how remodelers are priced and what a broker charges, then request a valuation.

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