An equipment distributor was under contract at $1.6M based on $300K in "cash flow." But: ❌ $200K in obsolete inventory was included at full value❌ Gross margins were declining—under 18%❌ Owner did sales, sourcing, and account management❌ 2 largest customers = 58% of revenue ✅ Adjusted FCF: ~$155K✅ Normalized value: ~$925K 📌 Cash flow pays … Continue reading ⚠️ Red Flag Case Study: Stale Steel and Phantom Margins

 ⚙️ In equipment distribution, high revenue can be misleading if: Inventory is overvalued or slow-moving Gross margins are razor-thin Owner plays multiple critical roles (sales, procurement, ops) Customer base isn’t recurring or contract-based 📌 Don’t let top-line revenue distract from thin margins or inventory drag. Normalize cash flow, and separate inventory value from goodwill.

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A small firm reported $160K in free cash flow and asked $900K. But: ❌ Owner did all tax prep and client relationships❌ No W-2 staff, no CRM, no formal retention system❌ 75% of clients were friends/family/long-term loyalists❌ Buyer was new to public accounting After normalizing for owner compensation and personal goodwill risk, true value: ~$380K … Continue reading ⚠️ Red Flag Case Study: The Vanishing Client List

 🧾 A CPA firm may show strong earnings—but is the value transferable? Red flags in accounting practice valuations: 90%+ of clients tied to the owner personally No staff or systems in place High seasonality with no retention strategy Addbacks include “off-season” travel and vehicles 📌 Goodwill must be enterprise-based, not just personal rapport. That’s what … Continue reading 🧠 Valuation Insight: Goodwill ≠ Transferability

📘 New for SBA lenders: Our Manufacturing Valuation Checklist Covers:✅ Owner-engineer wage adjustments✅ Customer and contract risk flags✅ CapEx vs. depreciation sanity checks✅ Asset-heavy vs. income-heavy guidance✅ Red flags from the shop floor 📩 Click here to grab your copy.

A manufacturer claimed $490K in free cash flow and $2.1M in value. But: ❌ 70% of sales came from a single aerospace client❌ CapEx averaged $90K/year—report showed $0❌ No market replacement wage for owner-engineer❌ Machinery valued at historical cost, not FMV ✅ Final value after adjustments: $1.12M✅ Deal restructured and saved 📌 Manufacturing deals require … Continue reading ⚠️ Red Flag Case Study: $2.1M… or $1.1M?

 🏗️ Manufacturing companies can’t be valued on earnings alone—asset reinvestment, equipment age, and customer concentration matter too. 📌 Common mistakes in underwriting: Depreciated equipment valued at book value CapEx totally omitted or mismatched to reality No adjustment for single-client exposure Owner wages too low for technical oversight If you ignore the factory floor, the value’s … Continue reading 🧠 Valuation Insight: Manufacturing Is an Asset + Cash Flow Hybrid

A $1.1M liquor store purchase price was based on $260K in seller’s discretionary cash flow. But: ❌ Inventory was not included but was being purchased separately❌ Owner took home $80K in cash sales annually—not reported❌ No CapEx allowance for cooler replacement❌ Payroll did not include 2 working family members ❌ Over $50K of inventory constituted … Continue reading ⚠️ Red Flag Case Study: The $50K Shrinkage Surprise

 🍷 Liquor store valuations are often oversimplified—but they come with unique risks: Inventory misclassified or misvalued High reliance on cash sales or unrecorded revenue Unrealistic gross margins compared to industry benchmarks Owner’s lifestyle expenses flowing through the P&L 📌 Inventory cycles, weekend labor coverage, and shrinkage all matter when estimating cash flow.