Is The Listing Price Crazy? How Business Buyers Can Make Sense of Add-Backs


Small businesses are complex little animals, and this is especially true when trying to determine whether or not a business is listed for a fair price. The pricing of businesses can be very confusing for buyers, especially those new to the small business world.


Taking a cursory glance at a tax return or a profit and loss statement can leave you scratching your head when comparing what you see with the listing price. How did the sellers get to that number?


The value of a business comes from cash flow, meaning an operating business has value for a buyer because it generates money. This money isn’t all just cash, however, as an owner benefits from their business in a number of ways. For instance, many small business owners pay for personal expenses as part of their business to minimize their tax liability.


These owner benefits that are funneled through a business can make determining the value to a buyer a bit complicated. To help with clearing up any confusion there is a metric used to determine the value of a small business called Seller’s Discretionary Earnings, or SDE.


SDE simply means that you take anything personal that an owner gets from their business or anything that was a one-time expense (something a buyer wouldn’t have to repeat or worry about) – and you add that amount back into what the business makes so you can determine what the cash flow actually is.


What kinds of expenses get added back?


Discretionary expenses, like paying for a car or cell phone through the business. Think of these like perks that a buyer might not necessarily take, so that expense is added back in to show a buyer what the numbers look like without the added perks taken out.


Extraordinary expenses, like a very high salary paid to a family member who works in the business – a family member who would probably not be staying on once the business is sold. The amount of this salary that is above the industry norm would be added back into the business to normalize the payroll numbers. This way a new owner can see what the cash flow looks like with staff who only take a standard salary.  


Non-Recurring expenses, like the cost of repairing water damage from a broken pipe. The new owner wouldn’t need to pay for something like this continually, so the one-time expense is added back in.


Non-Cash expenses, like depreciation. The tangible assets a business has, like the equipment or vehicles, will lose value over time. Although not the only factor in depreciation, you can think of this add-back as something related to what the business writes off for tax purposes.


Once all of these add-backs have been “added back”, you will be able to see the cash flow a business generates. This clearer picture will allow a prospective buyer to decide if a listing price is fair or not.


Still confused? Your business broker is there to help you untangle the parts of the small business world that are inherently complicated – like add-backs and listing prices. Talk to your broker if you think a listing price seems crazy or if you don’t agree with what was added back. They can make sense of the numbers – so you can make an informed choice about how much you would be willing to pay for a particular business.


Do you have more questions about add-backs? Would you like to know how sellers typically come up with listing prices? Ask us! Leave any questions or comments here and we would be happy to help.  



Michael Monnot

12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

Worried About The Market? Deciding The Best Time To Sell Your Business

The last year has been interesting – and with the economy, markets and housing prices growing at a great clip it can be a bit reminiscent of the pre-2008 bubble. If you are a business owner who is considering selling now or in the near future, this possible pre-bubble climate could make you nervous. You never know when the next 2008 might hit, and for those entrepreneurs who weathered the 2008 storm a very big question might be: How do I decide the best time to sell, especially if the market might take another tumble?




First and foremost, if you are making the moves necessary to get your business on the market but it isn’t quite there yet – don’t panic. If you’re not planning on selling today but would like to in the next 5 years – don’t panic. See a trend? The market is going to do what the market is going to do. Rather than worrying about something you can’t control – focus on the things you can.


Be flexible.

You might have plans for when you’d like to sell your business, but the small business market rises and falls on it’s own – and it doesn’t care what those plans are. Flexible business sellers watch the trends and adjust accordingly. Are businesses in your industry a hard sell right now? Maybe waiting out the market for a bit longer is the smart move. Is your industry currently a hot sell? Maybe you need to get your business listed now while the market is in your favor. You need to be willing to go with the flow if you are going to have the most successful sale you can.


Don’t spend all of your cash.

You don’t need a major remodel in order to sell your business. The new owners are going to change what is important to them, and your remodeling choices will more than likely not be the same as what they choose – so don’t waste the money. The average listing is 9-12 months, so you need to keep that cash on hand – just in case the market starts to fall and your business needs that money to stay afloat.


Marketing, marketing, marketing.

No matter what the economy looks like, businesses that stop marketing are businesses that will end up dead. No one wants to buy a business that isn’t trying to grow and gain new customers. You should always keep retooling and tweaking your marketing strategy until the day you hand the new owner the keys. Another reason you should always have an eye on growth? If the market sours and you need to keep your business a while longer in order to maximize the amount you are able to get in a sale – you haven’t taken your foot off the gas and hurt the business you now need to create income.  


The message here is no matter what the market does (or doesn’t do), remain optimistic about your business and it’s future. Keep marketing and growing, save your cash and be realistic and flexible with your decisions about when to sell.


Are you considering selling and want to know what the market currently looks like for a business in your industry? Would you like advice about when the best time to sell might be? Please leave any questions or comments here and we would be happy to help.



Michael Monnot

12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

Michael Monnot


5111-E Ocean Blvd
Siesta Key, FL 34242

Michael Monnot


9040 Town Center Parkway
Lakewood Ranch, FL 34202


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