for Completing the
This form/worksheet supplies very
useful information for you as prospective buyer (or as prospective
Cash Flow to Calculate Purchase Price
This is a form for your convenience. It is really easy to
complete. It is just for your
use. It is not a part
of the information that we need from you to do a pre-approval. We
don't need it for your formal application either. However,
the relationships between the financial information and the loan terms
are the same as when we analyze your formal loan request.
You may want to create a folder on your computer just for this
original form and for your completed versions of the form that you have
made. You could name the folder something like "ProFormas for
ABC Car Wash". You can save the worksheet page to that folder (or
folder). You may want to 'Save As' a worksheet/form named
Price for 12 31 2005". In this way you can make a file for
each year (or short period) that your are analyzing. And you can
files in your web browser (Explorer, Navigator, etc.) to make
adjustments as you see are necessary.
You can print the worksheets on your printer and you can attach them to
e-mails to send to partners or other interested parties.
The calculation software is embedded in the web page itself. You
can use the form on your computer as a standalone worksheet. You
don't have to be connected to the CarWashLoans.com web site to use the
form on your computer, and you don't even have to be connected to the
Internet. Very cool.
1. On the top line enter the actual pre-tax net income for an
annual period, usually for an annual period such as for the year ended
12/31/2005. (You could create additional files for the period ending
12/31/2004, 12/31/2003, etc.
For a Subchapter S, corporate tax return (Form 1120S) the pre-tax net
normally labeled on
the first page of the tax return as 'Ordinary Business Income (Loss)'
For a partnership, including LLC, tax return (Form 1065) the pre-tax
net income is norally labeled on first page of the return as 'Ordinary
business income (loss)' on Line 22.
For a personal tax return Schedule C, this is normally labeled
'Tentative profit (loss)', Line 29.
Make sure that you are using net income and expense numbers that are
just for the subject car wash, not commingled with any other car wash
or other business.
2. Add ALL of the Interest Expense for the period. Almost
car wash purchases are 'asset' purchases, not 'stock' purchases, so the
not take on any of the seller's interest bearing liabilities.
Form 1040, Schedule C, Lines 16a, Mortgage; and 16b, Other;
Form 1120S, Line 13, Interest.
Form 1065, Line 15, Interest.
3. Add back the Depreciation Expense and Amortization
Expense for the period. These are non-cash expenses.
Depreciation Expense and Amortization Expense are found in two
different places within the federal income tax return.
a.) The Depreciation Expense can be found in these places on
these respective forms:
Form 1040, Schedule C, Line 13, Depreciation;
Form 1120S, Line 14c, Depreciation.
Form 1065, Line 16c, Depreciation
Look for additional
depreciation expense in the supporting schedule for Cost of Goods Sold
although this is not frequent.
b). For corporate and partnership tax returns the Amortization
normally in the Supporting Schedule at the back of the
return. This schedule is labeled by the tax
preparer or tax preparation software as 'Statement...Other
Deductions'. This schedule is the detail of the miscellaneous
expenses that totals to the same amount as the Other Deductions on the
front page of the tax return. For a personal tax return
the schedule is the 'Supporting Schedule' or 'Statement' for the
Other Expenses on Line 27 of the Schedule C.
4. If you are buying at least the land and building, but the tax
returns or income statements show a 'Rent' expense for those payments
made by the subject car wash to the seller, or to other parties, you
should be able to add all of that expense back. If you will
continue to have a lease payment, in the top section you may need to
add-back the lease payments made by the seller, then in the bottom
section deduct the NEW lease payments that you will be making under
5. You may be able to determine from 'in-house' statements (as
opposed to Tax Returns that lump all insurance together) that there has
been a health insurance expense. If you
will have health insurance from your or your spouse's employer you want
add-back this expense if under your car wash ownership you will not
expense from the car wash revenue. Other examples are unusually
large automotive, travel, entertainment, or cell phone expenses.
Some sellers also support college-age children or other relatives
through the car wash payroll, although that child or relative may not
work at the car wash at all. These amounts would be added back,
but as buyer you want to make sure that all positions at the car wash
6. You may be able to add-back officer salaries and guaranteed
payments to partners, then deduct the amount of money that you will
require for your living or other expenses on the line labeled
'Withdrawals REQUIRED by New Owner, if any (annualized)'.
In general, identify expenses that are
more personal than business.
You may also need to add expenses that have been underreported, or
where the expenses for an expense item needs to be higher. Two
good examples are advertising and maintenance. Some sellers will
defer maintenance and repairs, and will reduce their advertising
expenses, when they know that they will be selling. Reducing
these outlays in the short-term can temporarily boost cash flow. (This
is known as 'dressing up the financial statements'). This can
deceive a would-be buyer into believing that cash flow is normally
higher than it really is. Don't be afraid to adjust expenses
higher where it seems from your other research that those expenses are
too low on the historical statements.
One mistake that we see some buyers make with regards to expenses is to
add back too much. Most car wash buyers will have about the same
operating expenses as the seller has had. So, you don't want to
be too aggressive in adjusting expenses except where the expense needs
to be higher, such as for advertising,
Bussey Car Wash
Loans 903-876-2308 fax: 484-737-1092