This formula focuses on the seller’s discretionary cash flow, and is used most often for business valuation in which value comes from their ability to generate cash flow and profit. Owner benefit valuation uses a fairly simple formula: multiply the owner benefit times a multiple consistent with the industry to get the market value. Central Business Brokers will carefully examine the Seller’s income statement to identify non-recurring and discretionary expenses.
If the expenses are non-requisite to the operation of the company, then they are added to cash flow. Certain non-cash expenses like depreciation and amortization may also be added to cash flow. The total of the owner benefit is usually multiplied by an industry specific number to arrive at market value.