HBR vs Stanford Study use of pre or post tax cashflows for debt payments.

by a searcher from London Business School

3 years ago

Has anyone tried to re-build the financial models in "HBR Guide to Buying a Small Business" or the Stanford search fund primer? In the HBR case do they use free cash flows before taxes to pay down interest and both mandatory and discretionary principal debt payments. In the Stanford case, they are using post-tax for similar payments.

If someone has taken the time to build these out I would love to have a quick chat - happy to share my work as well.

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searcher from London Business School

I started this thread to clarify investor's expected returns. It appears the HBR Guide to Buying a Small Business sets this as 25% IRR before tax. The Stanford study is roughly the same, after tax. It would be great to understand on the same basis what investors expect. As investors have different tax situations I imagine the best way to approach this is before tax & then the investors handle their tax situation individually. Which is to say, the Stanford study seems to put the hurdle much higher than the HBR book would suggest.

2 years ago | like reply | 0 likes

professional from Stanford University - Graduate School of Business

Exhibit 12 from our Search Fund Primer has more detail on the financial model. If you download the Primer from our website you should get all the Exhibits in a separate folder. https://www.gsb.stanford.edu/faculty-research/centers-initiatives/ces/research/search-funds/primer

2 years ago | like reply | 0 likes

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