What’s My Business Worth? - Calculating Owner’s Discretionary Cash Flow
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What is Owner’s Discrtionary Cash Flow (ODCF)? When you are evaluating a business for purchase this is a very important figure to calculate. Also if you are valuating your existing business, you’ll need to calculate this figure to derive the propert market value. A simple answer is “The amount of money a new owner will be able to take home out of the business annually.” Most of the components of ODCF are easy to calculate such as net profit and owner’s salary. Other components may be a little more tricky to ascertain.
The following are the most common elements of ODCF:
- Net Income
- Owner Salary
- Depreciation/Amortization
- Interest Expense
- Non-recurring expenses
- Owner perks such as car, health insurance, etc.
Below is an example calculation of ODCF:
Net Income $150,000
Depreciation 50,000
Interest 25,000
Owner Salary 100,000
Owner Travel (personal) 5,000
Owner Auto (personal) 5,000
Owner Health Insurance 8,000
———–
Owner’s Discretionary Cash Flow $343,000
In this example if the market valuation in your industry is 4x ODCF this business would be worth 4 x $343,000 = $1,372,000.


















And also business debt… It may affect greatly the cash flow.