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 which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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