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What does the business valuation look like? - view tip
What the buyer sees when pricing a company - view tip
What the lender may see when valuing a company? - view tip
Why use a 3rd party valuation? - view tip
#1 How to price your company - view tip
#2 Value perceived by potential buyers - view tip
#3 Why do a valuation if not selling - view tip
#4 Calculate an estimated company valuation - view tip

Valuation Tip #7

What the Lender May See

Does the Business Have Sustainable Cash

The pricing point from the buyer's position is whether the cash flow from the business will justify the purchase price for the business.

The basic formula is as follows:

  1. Does the historical cash flow (and projected cash flow) cover the cost of financing with a 20-25% cushion in the event of economic or market turn-down?
  2. If in the event of a default, can the bank recover the financing by selling the company assets?

If the answer is "no" to question 1, the lender will not finance the deal.

If the answer is "no" to question 2, the lender may finance the deal if you (via the buyer) can demonstrate that the business is a growing entity that support increasing cash flow.

  • Lenders assume a lot of risk when financing business purchases. Their only security in the event of default is the operating and fixed assets.
  • Lenders will not lend on goodwill and brand equity only. They are looking for a business that has been managed well, has a management plan in place to grow the business, and has a history of financials that support the projected earnings expected.

How much is your business worth? Contact us

Contact us

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Krayton M Davis
Executive Director, Novars Group, Inc

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