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Adjusted Net Income - Adding Back In One Time Expenses


A BizBen client and advertiser emailed this question about the sale of her small business which relates to selling a business that is relatively new but is doing well and how to represent the adjusted net income to potential business buyers.

 

Here is her questions about representing the adjusted net income accurately:

"We had a potential buyer come in the other day, without any experience in retail. Our business is showing zero adjustable net because we put small profits from our first full year of operation back into the business.

This particular buyer, and some others, all keep asking about adjustable net as a prerequisite for consideration, in spite of the fact that there is obviously room for lots of growth here, and that we had a great year (in terms of gross sales) last year. In fact, our first full year grossed a lot higher than most businesses like ours do in TWO years.

I understand  that profit is the motive, and we can show where we've reinvested, but it seems as if most potential buyers are looking for more of a 'sure thing'. We know this is a great business, and the only reason we're leaving is to retire. How does one sell a business in the early stages on authentic potential, and a great start?"

You hit it on the head when you said you have and are putting all of your profits back into the business. Make a list of all those expenses and show them to serious business buyers when you are representing the total adjusted net as of now. Investment dollars put into the business - especially "one time expenses" can be "added back" to adjusted net income and represented as such.


Categories: Business Valuation Issues, Selling A Business



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Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

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Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.


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