PROBLEM: Our client was interested in purchasing a local business establishment that they were connected to. They wanted to be sure they were not paying too much for the business.
SOLUTION: We prepared a cash flow forecast which indicated that they would pay too much if they accepted the sellers price. The cash flow forecast looks at monies they would have to borrow and repay, and projected sales and expenses. We also calculated a basic business valuation based on five years of discounted future cash flows.
RESULTS: The client was able to negotiate the purchase price with the sellers by reporting that cash flow would be insufficient at a future date, the business value was substantially less than the asking price, and the comparison with industry standards showed this business was not on par with its peers. They purchased the business paying 37.5% less than the asking price. They have great plans to make the business a success and more money to do so.