Business Valuation Doesn't Make Sense

Business valuation doesn't make any sense if you are going to try and live off the earnings from a business. For example, suppose a company is listed for sale at $300,000 and has cash flow of $100,000. I pay 20% and take out a loan for the remaining 80%, or $240,000. The loan is five years with a 6% interest rate, so payments are approximately $4,600. The business is making $8,333/month ($100,000 divided by 12), so no problem, right? Except that I have to pay taxes. If I'm in the 40% bracket with state, federal, and FICA I'm taking home $5,000 per month. In other words, I'm netting $400 month ($5,000 tax-effected cash flow minus $4,600 monthly loan payment). Am I missing something here?

Answer This Question

max 5000 characters

Review Community Guidelines

Help keep our Community clean and on topic. The BizBuySell Community is a place where you can discuss your questions, concerns and knowledge with others you can trust. It is not OK to use this forum to solicit others for personal or financial gain, illegal activities, or to rant about personal issues. Please review the full guidelines if you have any questions.

Submit Your Answer