Title: Episode 121: What Is My Business Worth? Part 1 with Andrew Cagnetta and Jessica Fialkovich
Subtitle: All You Need to Know About Recasting
Description: Andy and Jessica welcome you to another episode of the Deal Board Podcast. Three years of episodes have been aired; today there are many new listeners and subscribers that haven't heard all the episodes and that is why Andy and Jessica will go back and update on some of the most popular topics in buying and selling a business. In today's episode, which is the first of two parts, they are discussing, along with the experts, one of the most common questions every business owner has: "What is my business worth?" and to begin, they are diving deep into the topic of recasting.
Listing of the week: JT Tatem (South Carolina) is selling a 20-year landscape company that has done $6 million in revenue, $1 million in EBITDA, $4.5 million purchase, 35 people, five key managers in place. Email JT Tatem at jttatem@tworld.com.
Key takeaways:
[1:30] What is recasting? Some companies do their financing focusing on minimizing taxes; in the recasting process, the financials are recast so that information can be compared from business to business.
[2:56] Andy talks about the difference between recasting in small and big businesses.
[4:18] EBITDA or selling discretionary earnings?
[6:50] The non-taxable items: Interest, taxes, depreciation, and amortization.
[7:24] Jessica talks about the owner's salary.
[8:12] Andy dives deep into the officer's payroll taxes.
[9:35] A bank will accept as an add-back anything that is not a business expense, if it helps the business to operate it can't be added back.
[9:58] Andy and Jessica talk about add-backs, starting with owner "perks."
[11:51] What if you don't own the real estate?
[12:02] Rent: Owners who own the real estate and rent it back to themselves, most of the time it does not reflect market rent (positively or negatively).
[13:23] Jessica shares non-essential payroll family members.
[14:00] Andy talks about one-time exceptions in regards to add-backs.
[14:36] Jessica talks about dues and subscriptions.
[15:00] Bad debt.
[17:23] Jessica shares an example.
[18:00] Jessica and Andrew talk about leases that will be repaid at closing.
[18:19] What happens when a business has an unusual income or a penalty?
[19:22] Ask about any large number (increase or decrease).
[23:55] Ray Skaug (Rainier Business Intelligence).
[25:03] How can I build my understanding of the company? Dig into the numbers if you want to become more aware of the business.
[26:56] Ray talks about how many previous years a business needs to go back while recasting, Ray suggests going back four or five years.
[28:08] How to start normalizing the data?
[31:11] The goal of a recast is to predict the future.
[33:39] Ray talks about some "doubtful" add-backs.
[38:50] Ray shares his advice to sellers and buyers as they approach recasting.
[39:34] Ray gives an insight into what his company does.
[43:18] Deal of the week: Justin Lefebure (Central Florida) sold a very interesting deal, a fencing company listed at $500,000, making around $300,000.
[46:14] Julie Greeley (Lake Lanier) shares her background.
[49:18] What is the first approach when bookkeeping is a mess? Julie gives recommendations.
[53:15] Julie talks about recasting and gives tips to buyers to learn how to read them.
[55:20] Julie often asks for four years of recasting (discounting 2020 due to COVID-19).
[57:11] What should you do if you are planning to sell in a couple of years? Julie answers with a great couple of examples.
[1:01:35 ] Julie suggests "Honesty is best when it comes to your accounting."
[1:03:03] Listing of the week: JT Tatem (South Carolina) is selling a 20-year landscape company that has done $6 million in revenue, $1 million in EBITDA, $4.5 million purchase, 35 people, five key managers in place.
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