Understanding Adjusted Net Profit
- Published on Tuesday, 02 February 2016 11:19
- Written by Anthony Rigney
Adjusted Net Profit
Adjusted Net Profit is also sometimes called the “Owners Benefit” and the terms can be used interchangeably.
When net income or cash flow is calculated we use the Adjusted Net (Owner Benefit) figure. This is the net profit on the P&L (profit and loss statement) or tax return plus owner’s benefits. The owner’s benefits are added back because every financial benefit an owner receives from their business regardless of its form is not considered a business expense and is added back as profit. Our goal is to ascertain the true financial performance of the business.
Depreciation and Amortization, Interest Expense, Non-Recurring Legal Expenses, Donations, Federal Taxes and non-essential expenses are added back. Other possible add backs include expenses such as owner’s health insurance, life insurance for owners, retirement plan contributions for owners, and non-essential salaries (such as relatives who draw a salary but do not actually work in the business). Owner’s personal vehicle expenses (lease payments, operating expenses, gas, repairs, depreciation and insurance), owners non business related travel, entertainment and home telephone expenses.
As Business Brokers we calculate the Adjusted Net of a business and compare it to similar businesses which have sold. We use this sold comparable data to arrive at a price range when listing a business for sale.
For business buyers the Adjusted Net figure is best thought off as the amount available to 1) pay themselves a salary and benefits 2) Pay a ROI (return on investment) 3) cover any possible debt service.
Sellers should understand that this Adjusted Net is the most important number when valuing their business for sale. As a general rule the larger this number the more a buyer will be willing to pay for the business.
Anthony John Rigney PA is a Business Broker in Jacksonville Florida. Call 904-725-7677 for a free and confidential consultation
Understanding Lease Assignment
- Published on Thursday, 11 June 2015 11:20
- Written by Anthony Rigney
Understanding Assignment of Lease
One of the most overlooked issues when selling or buying a business is the Lease Assignment. Since most businesses rent their real estate the Landlords consent is necessary before a change of ownership can proceed.
It is best to be well prepared for this process. Lease assignments can take anywhere from days to months. The bigger the Landlord typically the longer and more arduous the process. Be prepared to pay an assignment fee. This can run into the thousands of dollars and may or may not be negotiable.
The Landlord will typically require some or all of the following documentation
•Asset Purchase Agreement (buy sell agreement)
•Buyers detailed Financial Statement
•Buyers credit report or permission to obtain credit report
•Buyers Tax Returns (typically a three year history)
•Buyers proof of assets (Bank Statements, Brokerage Statements etc.)
•Detailed business plan covering first 2-3 years of operation
•Articles of Incorporation if the ownership will be held by a Corporation or LLC
It is best to begin collecting these documents immediately. Submitting a complete package to the Landlord not only avoids unnecessary delays but also provides a clear impression that you are organized and efficient. The old adage about “you only get one chance to make a first impression” is so true here.
During the bad years following the financial meltdown of 2008, it was not uncommon for Landlords to grant concessions to new tenants. However in recent years as the economy has improved this has become less common. Still if you do your research and determine that a rent reduction is justified it may not hurt to request one. If a Landlord is willing to be flexible they often prefer to offer a period of free rent rather than a rate reduction.
Another important concern for the assignee is the length of time remaining on the lease. If the location is important and you plan on remaining there you may want to insist on a longer lease or end of lease “options”. These options will give you the right to extend the lease after it expires.
Once the Landlord has reviewed your documentation they will typically request a sit down meeting. This is an opportunity for the Landlord to assess you in person. Treat it as a serious matter. Show up on time and in business dress.
The last step will be for the Landlord to approve the assignee and draft the new lease documents. You may choose to have your attorney review these to determine if they are acceptable. Finally do not forget costs associated with becoming a tenant. In addition to the lease assignment fee you may be required to pay lease deposits as well as first and last month rent. Other ancillary startup costs such as utility deposits, vendor deposits and fees could be required.
The best person to guide you through this entire process is a Professional Certified Business Broker. In Florida the best Business Brokers belong to the Business Brokers of Florida
(BBF). Ask if you Broker is board certified.
Anthony John Rigney PA BCI (Board Certified Intermediary) is a Business Broker living and working in Jacksonville, Florida