Requesting marketing packages from other brokers on their listings this week has again made me think how sorry I am for some of the sellers getting stuck with a bad broker.

Here are the two last marketing packages I received.

#1 – “Thanks for the NDA . Company is XYZ. website is www.XYZ.com. Please email or call if your prospect would like to see the business. Could be a great add on for him.”

This broker will rely on the seller to explain the business, so why does he really even need a broker?

#2 – I received 30 pages of a couple years of tax returns so this broker is going to let the buyer decipher the financials. Look at the bottom line of your tax returns; is that how much money you really make? But that is what the buyer will see!

What is a Recast

Tax returns are really prepared to minimize your tax liability so the objective of recasting your financials is to show the true income/benefit of the business by adjusting any one time expenses, owner compensation, fringe benefits, depreciation, amortization, interest and other items.

Owner Salary

This is typically the most common as we will add back the salary of the owner. Compensation of family members is also common and would be added back if they are not actively working in the business.

Fringe Benefits

There are a plethora of fringe benefits that I have seen and are a true benefit. Some of the common fringe benefits are the business is paying for personal cell phones, personal gas and vehicles, health insurance, travel and entertainment. Some of the more grand fringe benefits I have seen are airplane fuel, a muscle car collection, groceries, travel and more.
Unless specifically asked and pointed out how would a buyer find these items and see the true income of the business.

Depreciation

Typically depreciation, or at least a portion is added back in to the income as a non cash expense for small businesses which we use the seller discretionary earnings (SDE) to show income and benefits.

Interest

A business is typically sold free of any liabilities meaning the interest expense is added back since it will not be a continued expense.

Non-Recurring Expenses

We will typically add back one time or extraordinary expenses if it is non recurring or not related to the business. In other situations we may add back certain purchases such as a vehicle and properly amortize it rather than taking a large one time hit. Other typical add backs may be legal fees, moving expenses, expanding operations, purchase of assets or many other items.

As a seller a larger income will usually mean a larger selling price. The add backs should be valid and provable as to legitimize the value of the business.

List your business with me and you will not have to worry about what your broker is or is not doing but rather focus on your business while I focus on selling it for the true value.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com