Recasting Financial Statements

Most private businesses do not issue the kind of financial statements or annual reports that investors receive from public companies. In many small businesses, the only statements available will be tax returns. Unfortunately, the purpose of tax returns is to report the amount of taxable income and the related taxes due to the government. Their purpose is not to help an owner or investor make decisions about buying or managing a business.

Since many small businesses have only a single owner, that owner has complete discretion over how they compensate themselves, what purchases the business will make, and what income the business will therefore report and be taxed on. Making a purchase decision based only upon the net income of a small business is therefore not a wise choice.

Financial statements of small businesses must be restated to determine the Seller's Discretionary Cash Flow (SDCF). Recast financial statements are available for at least the last three years on all of our listings, and our brokers would be happy to walk you through the process and help you understand the statements.