All Things Valuation Related | I value all businesses both Public & Private | Follow to learn how | Charlie Stanton, CFA
Joined June 2020
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As a business appraiser, I've always questioned how people use Seller's Discretionary Earnings (SDE)
Most small businesses I've encountered depend heavily on their owners
BUT adding back the owner's entire salary can obscure the real cost of operating the business
If someone must replace that owner's labor, then those costs don't simply disappear
That's why I prefer to normalize owner compensation and evaluate the cash flow remaining
Because if there's little cash flow after paying for the work required, what exactly is the buyer purchasing?
Capital For Value retweeted
I recently learned that in 1772, Ben Franklin gave Joseph Priestley a process for a hard decision: list pros and cons over several days, weigh them, then wait another day or two.
Lots of waiting and time were paramount to the process. In today’s day and age, we are even more rushed, distracted and speedy.
I named my firm Patient Capital, yet I find this reminder helpful that patience and time are critical to a good decision-making process. 🕰️
The year is 1999
A stranger gives you a photo from the future
This is the photo you get
What’s your next thought?
If you have debt on commercial real estate, if the lender is a bank, the debt covenants can require the property management account & owner account to live at the bank
That makes sense
What becomes tricky, is the bank can make it challenging for you transfer funds outside their bank
They can do this by limiting your ability to wire funds outside their bank