[email protected]
(800) 239-5085
Schedule a Demo
  • Home
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Features
    • Industry Websites
    • Professional Content
    • Digital Marketing
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
    • Listing Promotion
    • Branding & Design
  • Resources
  • Media Kit
  • Contact Us
  • Home
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Features
    • Industry Websites
    • Professional Content
    • Digital Marketing
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
    • Listing Promotion
    • Branding & Design
  • Resources
  • Media Kit
  • Contact Us
  • Home
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Features
    • Industry Websites
    • Professional Content
    • Digital Marketing
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
    • Listing Promotion
    • Branding & Design
  • Resources
  • Media Kit
  • Contact Us
  • Home
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Features
    • Industry Websites
    • Professional Content
    • Digital Marketing
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
    • Listing Promotion
    • Branding & Design
  • Resources
  • Media Kit
  • Contact Us
Blog
Home Buyer Articles The Top 3 Key Factors to Consider about Earnings
Buyer Articles

The Top 3 Key Factors to Consider about Earnings

Deal Studio July 5, 2017 0 Comments

Two businesses could report the same numeric value for earnings but that doesn’t always tell the whole story.  As it turns out, there is far more to earnings than may initially meet the eye.  While two businesses might have a similar sale price, that certainly doesn’t mean that they are of equal value.

In order to truly understand the value of a business, we must dig deeper and look at the three key factors of earnings.  In this article, we’ll explore each of these three key earning factors and explore quality of earnings, sustainability of earnings after acquisition and what is involved in the verification of information.

Key Factor # 1 – Quality of Earnings

Determining the quality of earnings is essential.  In determining the quality of earnings, you’ll want to figure out if earnings are, in fact, padded.  Padded earnings come in the form of a large amount of “add backs” and one-time events.  These factors can greatly change earnings.  For example, a one-time event, such as a real estate sale, can completely alter figures, producing earnings that are simply not accurate and fail to represent the actual earning potential of the company.

Another important factor to consider is that it is not unusual for all kinds of companies to have some level of non-recurring expenses on an annual basis.  These expenses can range from the expenditure for a new roof to the write-down of inventory to a lawsuit.  It is your job to stay on guard against a business appraiser that restructures earnings without any allowances for extraordinary items.

Key Factor # 2 – Sustainability of Earnings After the Acquisition

Buyers are rightfully concerned about whether or not the business they are considering is at the apex of its business cycle or if the company will continue to grow at the previous rate.  Just as professional sports teams must carefully weigh the signing of expensive free-agents, attempting to determine if an athlete is past his or her prime, the same holds true for those looking to buy a new business.

Key Factor # 3 – Verification of Information

Buyers can carefully weigh quality and earnings and the sustainability of earnings after acquisition and still run into serious problems.  A failure to verify information can spell disaster.  In short, buyers must verify that all information is accurate, timely and as unbiased as is reasonably possible.  There are many questions that must be asked and answered in this regard, such as has the company allowed for possible product returns or noncollectable receivables and has the seller been honest.  The last thing any buyer wants is to discover skeletons hiding in the closet only when it is too late.

By addressing these three key factors buyers can dramatically reduce their chances of being unpleasantly surprised.  On paper, two businesses with very similar values may look essentially the same.  However, by digging deeper and exercising caution, it is possible to reach very different conclusions as to the value of the businesses in question.

Copyright: Business Brokerage Press, Inc.

ismagilov/BigStock.com

50
3071 Views
The Deeper Significance of a Listing AgreementPrevThe Deeper Significance of a Listing AgreementJune 20, 2017
Around the Web: A Month in SummaryJuly 7, 2017Around the Web: A Month in SummaryNext

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recent Posts
  • Maximizing Your Time by Rating Buyer Seriousness January 20, 2021
  • Ownership Transition Survey Results on feedback and answers from family-owned businesses January 7, 2021
  • The Importance of Owner Flexibility December 16, 2020
  • Getting the Most Out of Confidentiality Agreements December 9, 2020
  • How to Optimize Your Chances of Selling Your Business December 2, 2020
Categories
  • Blog 22
  • Buyer Articles 77
  • Buyer FAQ 15
  • Buying a Business 35
  • Content 1
  • Financing the Deal 7
  • General Business Brokerage 9
  • Marketing 6
  • Marketing for Business Brokers 1
  • Promotion 1
  • Seller Articles 219
  • Seller FAQ 35
  • Selling a Business 201
  • Uncategorized 3
  • Using a Professional 6
  • Valuation 15
  • Workflows 1

Automate, accelerate and elevate your deal making
Email [email protected]
Phone (800) 239-5085
Request Media Kit
Features
» Industry Websites
» Professional Content
» Digital Marketing
» Lead Capture Tools
» Sales CRM
» Deal Management
» Integrated Workflows
» Listing Promotion
» Branding & Design
Recent News
  • Maximizing Your Time by Rating Buyer Seriousness
    January 20, 2021
  • Ownership Transition Survey Results on feedback and answers from family-owned businesses
    January 7, 2021
  • The Importance of Owner Flexibility
    December 16, 2020
Newsletter

    Terms of use | Privacy Policy

    © Copyright 2019 Business Brokerage Press, Inc. All Rights Reserved.