ETA Modeling: Incorporating Taxes, Should I and How? - Searchfunder

Member resources:

Member directory

Searchfund list

Company contacts

Industry reports

Transaction multiples

Frequent asked questions:

What is Searchfunder.com?

Searchfunder.com is an online community of searchers, investors, lenders, brokers and other professionals. Over 80% of those involved in searchfunds maintain a Searchfunder account to help them network, hire, and mentor others.

What are the benefits of membership?

In addition to accessing the most active online network of business buyers, Searchfunder licenses research that is simply not cost effective for individuals. Access over 15,000 industry reports and 50,000 transaction financials. You also get monthly credits for contact information for your company sourcing campaign with the option to purchase more at drastically discounted rates. Searchfunder has pre-purchased access from these data providers in order to empower individual buyers and to help searchers level the playing field versus private equity.

Do you have deals?

While we are primarily a buy-side network, we do have hundreds of brokers that regularly post deals to the community.

Can I find an internship on Searchfunder?

Absolutely! We have the industry's largest intern job board. If you are considering a search, the first step is to help another business buyer so you can hit the ground running.

What does it cost?

Searchfunder is a subscription service. We offer flexible monthly, annual and lifetime memberships.

Monthly

$79 / month

Annual

$19 / month

Lifetime

$432 / once

Those who maintain an account with us for over 4 continuous years are permanently added to the community without the need for a membership.

Do I need an MBA to join?

While a large number of our members come from dedicated programs at Harvard Business School, Stanford GSB, Chicago Booth, and other top programs, searching is no longer reserved for the elite. With the current abundance of dry powder in private equity, and an increasing number of business owners reaching retirement age, good deals rarely go unfunded.

Post a question, deal, job, etc...

Make a post...

Complete registration to post.

by a searcher from The University of Michigan - Stephen M. Ross School of Business
in Portland, OR, USA

1yr ago

ETA Modeling: Incorporating Taxes, Should I and How?

Hello again ETA amigos!

How should taxes be used in a ETA model? or should they be used at all?

I am building a model to use as gauge on deals. My model is structured as a pass through entity, 100% ownership and funded by an SBA loan. It's purpose is show me future cash flows in consideration of past discretionary earnings and the debt burden. Currently I have taxes deducted based on estimated taxable income and tax rate bases on that estimated income.
Should taxes even be considered in this way? I have many little dependents, so my actual tax owed is not as straight forward and applying a standard tax rate to an income. So, should taxes I might have to pay while owning a business be taken out of the equitation? Why and why not?

Share

0 Likes

236 Views

Login to read all 8 comments

reply by an intermediary 1yr ago
from The University of Chicago in Chicago, IL, USA

You should account for investor-level tax in a pass-through entity. You may have to show pro-forma financials to lenders before closing. Even though your tax rate may be low due to deductions, the lender his likely to ask for pro-forma based on normal tax rates.

reply by a lender 1yr ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

You should definitely factor taxes into your analysis. However, most of these businesses are operated as S-Corps or LLC's, which mean the taxes pass through to the owner(s) individually. Because of that the amount of tax that will need to get paid will highly depend on each individual owner's income situation. Also, keep in mind you can adjust taxable profit using depreciation, amortization, and interest expense. So some of the cash flow will not be taxable at the end of the day. There is no 100% uniform way to do the analysis because it is based on each individuals own tax bracket.

The way SBA lenders typically look at taxes is they look at the historical tax bracket the owners have had and factor in what they expect they will pay in taxes after debt service going forward. They then be sure there is adequate cash flow globally, including cash flow from outside income, the business, any salary from the business, etc. to cover that expense.

Now if you have a C-Corp, you 100% have to factor the taxes in at the corporate level. Lenders will typically use the corporate tax return against projected profit after removing projected depreciation, amortization, and interest expense. The lender will likely need your or your accountants assistance in projecting what anticipated depreciation or amortization will be post-closing.

If you have additional questions you can reach me here or directly at redacted Good luck!

More on Searchfunder