Owner's Cash Flow: The Keystone of an Analysis of A Business

If you get five "experts" on business valuation in a room and give them a business to "value" you will probably get 5 wildly varying opinions as to the worth of the business. Business valuation is an art not a science. The bottom line is that a business is only worth what it will bring on the market. The tricky part is determining where the "market" is at in regard to that particular business. There are indeed "flavors of the month" as the popularity of certain types of businesses ebbs and flows. Among the many factors to look at the keystone of an analysis of a business is "owners cash flow" which can be simply described as what the owner of the business is taking out of the business directly or indirectly or the total sum of all the economic benefits which are derived from the ownership of the business. Sometimes it takes a little detective work to find out what this true number may be as often tax returns are adjusted for tax minimization. Typically cash flow is determined by adding together Owner's direct compensation + owner's benefits (direct and indirect), depreciation, amortization, interest, non-recurring expenses, plus net income. The sums of these numbers will give you a good starting point in determining the economic benefit being derived from owning that particular business.