Seller showed $450K in cash flow after $160K in adjustments. Problem: $36K was “one-time” marketing (used every year) $28K in car leases for sales personnel $19K in non-owner bonuses “not needed post-sale” $27K of normal business insurance Final adjusted FCF: ~$340KValuation dropped. Loan size reduced. Buyer injected more equity. 📌 Always test the addbacks.
SBA 7a appraisal
🧠 Sin Spotlight: Fantasy Free Cash Flow
🧯 Deadly Sin: Addback Abuse = Fake Cash Flow We’ve seen appraisals with: ❌ Business travel labeled as “discretionary”❌ All advertising added back❌ Working owner and spouse payroll erased with no replacement If the addbacks are inflated, the cash flow is fantasy—and so is the value. 📌 SBA valuations must reflect economic reality, not seller … Continue reading 🧠 Sin Spotlight: Fantasy Free Cash Flow
📚 Valuation Myth: All Valuations Are Created Equal
The Myth:As long as the report has a number, it's reliable. The Reality:Not all valuations are based on credible data, accepted methods, or professional standards. Some are biased, boilerplate, or created to hit a target. Why It Matters:Relying on a weak or non-compliant valuation can lead to poor decisions — or SBA loss of guarantee. … Continue reading 📚 Valuation Myth: All Valuations Are Created Equal
✅ Global Cash Flow ≠ Business Value
💬 Lenders use global cash flow to underwrite loans. But business valuation? That’s a different animal. Here’s why you can’t justify a higher price using global cash flow. 👉 Read our white paper on Global Cash Flow vs. Free Cash Flow
Understanding Risk and Return in Closely Held Businesses: A Guide for SBA 7(a) Lenders
Evaluating the risk and return of a business acquisition is central to SBA 7(a) underwriting. Closely held or family-controlled businesses present unique financial dynamics: opaque markets, limited liquidity, and owner concentration. These realities significantly alter their risk-return profile compared to publicly traded companies. This guide explores how SBA lenders can evaluate such businesses rigorously, using … Continue reading Understanding Risk and Return in Closely Held Businesses: A Guide for SBA 7(a) Lenders
Lender Insights: Checkpoints for SBA Underwriting
Use these short callouts as quick reminders or margin notes to help identify key risks and reinforce SBA lending best practices. Lender Insight #1 Analyze a 3-year break-even analysis and working capital needs under downside scenarios. This helps evaluate business feasibility and funding sufficiency. Lender Insight #2 If only one valuation method is used in … Continue reading Lender Insights: Checkpoints for SBA Underwriting
Working Capital Guide
Use this guide to evaluate whether working capital (WC) has been properly addressed in a business valuation and underwriting for SBA lending purposes. Step 1: Identify WC Components Accounts Receivable (AR) Inventory Accounts Payable (AP) Accrued expenses Step 2: Evaluate Treatment in Valuation Is WC included in the purchase price or treated as a separate … Continue reading Working Capital Guide
Mapping The 7 Deadly Sins of Valuation to SBA SOP & Underwriting Concerns
Use this matrix to connect valuation red flags with SBA SOP requirements and underwriting risk categories. Deadly SinSBA SOP 50 10 8 / Underwriting ConcernWhy It Matters1. Confusing Fair Market Value with Strategic ValueSBA requires FMV standardStrategic value misleads stakeholders and may result in overvaluation unsupported by market participants.2. Incorrect Adjustments to Financial StatementsAffects global … Continue reading Mapping The 7 Deadly Sins of Valuation to SBA SOP & Underwriting Concerns
Strategic Creep Review Tool
Use this tool to identify when a purchase price or business valuation has drifted from Fair Market Value (FMV) into buyer-specific strategic assumptions. FMV vs. Strategic Value Recap FMV = Value to a hypothetical buyer in an open market Strategic Value = Value to a specific buyer based on synergies or integration Red Flag Phrases … Continue reading Strategic Creep Review Tool
Rules of Thumb Red Flag Guide
Use this guide to identify risky valuation shortcuts based on rules of thumb instead of proper analysis. What Are Rules of Thumb? Simple heuristics like '3x earnings' or '1x revenue' used to estimate value without detailed analysis. Often based on anecdotal deals or broker norms—not on real market data or normalized financials. Why They’re Dangerous … Continue reading Rules of Thumb Red Flag Guide
Highland Global Business Valuations 