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What do you mean by Cash Flow and FF

What do you mean by Cash Flow and FF & E? I'm composing an ad and that puzzled me.

Wayne Fowler

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Answers (3)
Julie A. Barnes, CPA
Small Business Exchange, Inc.
Travis County, TX

Hi Wayne,

You can see how legitimate interpretations of Cash Flow can quickly can quickly have you 'wrapped around the axle'. To put your mind at ease, simply ask whoever is providing the Cash Flow number to explain how they arrived at that figure.
Whether you are 'buying a job' or not - you want to take the net income after taxes and add back any expenses that are not paid out of the bank account - such as depreciation and amortization. If you think about it, when was the last time you wrote a check to depreciation?
What you're really trying to determine is: how much cash was deposited to the bank account of the business? It's up to you to add whatever the owner was paid - or not.
One minor note: when Andrew was referring to the replacement of the owner for a manager who will make $50,000 less - this is actually considered a 'normalization' of net income. This is a process where you figure out what YOU will most likely be taking home in cash if you were to purchase the business.
There may be another 'FF' somewhere out there but in usually means, in the context of a sale of purchase of a business, Furniture & Fixtures. Actually, you'll usually see the abbreviation: FF&E, which means Furniture, Fixtures, & Equipment.
I sure hope I have not further confused you. If so, feel free to let me know.

Good Luck!
Julie A. Barnes, CPA
www.SmallBusinessExchange.net

May 20, 2009
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Wayne is close but not quite on the cash flow. This number assumes that there are employees in place and no time is required from the owner. So, if the seller was paying himself 100K and you can replace him with a manager for $50K, then the cash flow is $150K in his example.

What he described is what business brokers euphemistcally refer to as Sellers Discretionary Cashflow. This is a valuable number, but it cannot be used as the basis for valuation. If you price a business as a multiple of SDCF, then you are offering to "buy" the job which you might turn around and Pay someone else to do.

May 19, 2009
Kristal Johnson
BizBuySell
Member and Client Services Representative
San Francisco County, CA

Cash Flow is arrived at by "starting with your net (before tax) profit. Then, add back in any payments made to the owner, interest and any depreciation of assets." For example, if the net profit before taxes was $100,000 and the owner was paid $70,000 then the cash flow is $170,000.

FF&E: Are furniture, fixtures and equipment that will remain with the business, such as desks, office cubicles, decor elements of a restaurant or showroom, computers and office machines, pots and pans, dishes, display cases, manufacturing equipment, etc., depending on the type of business

I hope this answers your question.

May 19, 2009

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