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The term “cash flow” refers to a variety of concepts, but its most common meaning in financial literature is the same as “funds derived from operations.” The concept of cash flow can be used effectively as one of the major factors in judging the ability to meet debt retirements, to maintain regular profits, to finance replacement and expansion costs, etc. Cash flow helps analysts judge whether debt commitments can be met without refinancing. For us in business sales, cash flow shall mean the dollar amount obtained by adding the net income of a business to the owner’s salary (if any) and/or fringe benefits plus depreciation, interest expense, and amortization, plus any one-time non-recurring expense(s).

The Balance Sheet represents the financial picture of a company as it stood on one particular day. The Balance Sheet is divided into three main parts: The first part lists the "assets". The second part lists the "liabilities" and the third part lists the "stockholders' equity". These parts are always in balance. In the "asset" column, we list all the goods and property owned, as well as claims against others yet to be collected. Under the "liabilities" column, we list all debts payable by the company. In the "stockholders' equity" column, we find the amount the stockholders would divide among themselves if the company were liquidated as of the balance sheet date. This amount is the difference between the assets and the liabilities of the company.

A Profit & Loss Statement (P & L) matches the amounts received from selling goods or services and other items of income against all the costs and outlays of cash incurred in order to operate the company. The result is a net profit or loss.

While the Balance Sheet shows the fundamental financial soundness of a company on any given date, the Profit and Loss Statement may be of greater interest to Buyers because it shows the record of its operating activities for the whole year. It serves as a valuable guide for the Buyer to anticipate how the company may do in the future.

ESTIMATED ANNUAL "TRUE NET PROFIT" Sample Work Sheet

NET PROFIT (SELLER'S BOOKS - 12 MONTHS) $_____________ ADD BACK:

Depreciation $_____________

Amortization $_____________

Debt Service (Loan Interest) $_____________

Income Tax $_____________

Owner's Salary $_____________

Manager's Salary $_____________

Personal Expenses:

Promotion $_____________

Insurance $_____________

Travel & Entertainment $_____________

Auto $_____________

Other (Specify) _______________ $_____________

Expenses Buyer(s) May Eliminate:

Equipment Rental $_____________

Discounts & Refunds $_____________

Bad Debt $_____________

Donations $_____________

Extra Employee(s) $_____________

Other (Specify) _______________ $_____________

Gross Sales Not Reported (Juke box, games, etc. that may be verified.)

Specify ____________ $_____________

Other (Specify) ____________ $_____________

PLUS TOTAL ADJUSTMENT = $_____________

TOTAL ANNUAL "TRUE NET PROFIT

(Sellers Discretionary Cash) $_______________

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LESS BUYER(S) DEBTS

Debt Service (Loan Interest) Assume $_____________

Equipment Rental $_____________

"New" Loan Payment $_____________

Other (Specify) _______________$_____________

LESS TOTAL ADJUSTMENT (DEBT SERVICE) $_____________

"NET SPENDABLE CASH" TO NEW BUYER(S) $_______________

Approximately 30% of the Sellers Discretionary Cash can go towards debt service.

*Note: The above information is supplied by the seller from his books and financial records. A broker or agent, should review these books and financial records. Broker, or agent, can not warrant the accuracy of the information .