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Why is cash flow so much less than gross income?

Az Gardener

LawnSite Gold Member
Location
Phoenix, Az
I was at a mower service center today and saw a filer for a company for sale. I looked it up on the web and a couple of things struck me as odd.
  1. The yearly sales were 147,000 but cash flow was only 90 K
  2. In all the comps cash flow was significantly less than gross sales
    The broker listed 5 comps to compare this "gem" to. I was amazed at the disparity between sales and cash flow is everyone getting screwed or is there some accounting technique that I am not familiar with?
 
OP
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Az Gardener

LawnSite Gold Member
Location
Phoenix, Az
Maybe its just grammer. Net -vs-gross I understand, but in this example they were listing cash flow, not net. Gross of 147-k and "cashflow" of 90-k. So is cash flow and net the same thing? Never heard it called that.
 

Trinity Lawn Care LLC

LawnSite Senior Member
Location
NJ
The amount of cash a company generates and uses during a period, calculated by adding non-cash charges (such as depreciation) to the net income after taxes. Cash flow can be used as an indication of a company's financial strength.

Here are a couple of links:

http://www.investopedia.com/articles/analyst/03/122203.asp

http://www.investopedia.com/articles/01/110701.asp

There is info for cashflow statements, operating cashflow, and much more. I am not an accountant, so I hope that this info is helpful. By the purest definition Net income is not the same as cashflow.
 

SLSNursery

LawnSite Senior Member
Location
West Haven, CT
The broker is not an accountant. I wouldn't really rely on any of his statements or comparisons. My thought is that he is saying that the 'cash' that will 'flow' to the owner with 147k in sales is 90k. Sounds like more of a sales pitch type of deal.

Seems kind of irrelevant to the business in a sense, because what assets does that kind of business really have? Also - with that small amount of sales, it probably doesn't have a lot of inventory or debt which would consume cash and potentially hide it from the income statement.
 

tiedeman

LawnSite Fanatic
Location
earth
Usually when they say cash flow, they basically mean end of year net in this case
 
If he is grossing 147k and netting 90k I would be very suprised......61% net?


Here it comes..get ready...here it comes..the gross/net argument....annual wintertime ritual here and on all other message boards....go ahead tell us all how you grossed 147k and netted 90k whoever you are...go ahead.....we're ready!
 

Fantasy Lawns

LawnSite Bronze Member
Location
Space Coast
MMMnn the way I understand it .... at least if it was something I would say .... concerning "cash flow" ie .... how much money we are making (gross) vs. how much money it is costing us (expense) to make the gross .... and for the most part the difference would be considered ==> profit


So with the statement .... I read it as the gross is $147K & the yearly expense is $90k .... or $57K profit ... which is just around 38%

This can be misleading .... especially if the owner is not taking a salary or members of the staff are officers of the Inc. or however it is set up .... thus W/C exempt .. which can save a lot of $$ yearly .... they may own the land the equip is store ... thus have no yearly lease expense ..... etc. all sorts of ways work the numbers

But lastly .... Cash is KING ... good cash flow is a very strong indication of a business ability to survive

Best to have a good CPA to look it over
 

hoskm01

LawnSite Fanatic
AZGardner,
Ive seen this ad and talked with this guy via email. I didnt quite understand it either, but hes on the wrong side of town for me. You buying?
 
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