Company Cash Flow Position

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The Cash Flow Position Supports the Asking Price

Think about it. If I am going to invest $100K as a down payment to buy your company, the return of my investment needs to equal a cash return that is greater than my return if I invested the down payment in the equity markets.

Additionally, if I am going to expense my "sweat equity" to manage and grow the business, the cash return must be greater in value than finding a job that gives me equal value.

That is why cash is a determinant factor when making a business purchase.

Example:

Estimated Sale Price:	$450,000
Buyer Down Payment @ 33%:	$150,000
Business Financing @ 67%:	$300,000
Financing Interest Rate:	10.0%
Financing Term:	7 years
Annual Sustainable Cash Flow	$180,000
Less: Debt Service	$59,764
Less: Debt Service Cushion @20%	$11,953
Less: Annual Capital Expenditures	$5,000
Less: Owner's Salary	$100,000
Cash Flow Coverage:	$3,283
The example shows that my "down-payment" and "sweat equity" will generate a positive cash position after paying financing costs and deducting a cash salary.