What Is Cash Flow Business Valuation?

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Cash flow business valuation is the value of a business based on the amount of income that comes into the business from cash profits. Find out how cash flow business valuation is often used to determine a business sale price with information from a registered financial consultant in this free video on business.

Part of the Video Series: Money Management & Personal Finance
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Video Transcript

This is financial adviser, Patrick Munro, talking about What Is Cash Flow Business Valuation? Many businesses are in the cash business. For instance, restaurants, amusement companies, laundry companies and things of that nature. What happens is, if you're in a cash business and you keep books and resulting in the amount of cash coming into your business, the business can be valued for sale to another owner based on the amount of cash that you do have coming into the business. It's important to keep true books on your business, to not inflate the value of the amount of dollars coming into your business, because if you were to do so, it would cause audit concerns from the IRS. Many times, businesses will be able to be valued at X amount of times earnings. For instance, a dry cleaning establishment that takes in a hundred thousand dollars net of expenses can sell sometimes for three times earnings. Three times business cash flow, and what that means is three hundred thousand dollars to buy that laundromat. So, it's a great way to value a business, and this is financial adviser, Patrick Munro, talking about business valuation regarding cash flow.


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