Seller’s Discretionary Cash Flow Business Valuation

There are a few instances where valuing a business using the seller’s discretionary cash flow is appropriate. Here are some explicit examples

1. The company’s value is derived primarily from its earnings/cash flow.
2. The company has an established earnings history.·
3. The company’s owner is a key employee who actively manages the company.
4. The owner/manager can be readily replaced without negatively affecting the business.
5. Reliable earnings/cash flow data is available for the subject company and comparative companies.
6. Current earnings/cash flow is expected to approximate future earnings/cash flow.(if valuing a controlling interest. owners’ benefits can be reasonably estimated. (Such benefits Include compensation. perquisites. personal expenses paid by company).
7. Earnings/cash flow for the subject company and comparative companies is significantly positive (that is. neither negative nor marginally positive).
8. The definition of value used in the assignment is intrinsic value.

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Nate Nead

Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck.

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