Chris Collins explains that when lenders or buyers evaluate a business (e.g., dealerships or real estate), they focus on cash flow and net profit — the cash that reaches the bottom line — rather than gross profit. He emphasizes that increases in asset value raise owner net worth and that managers are effectively graded on the impact their decisions have on the owner’s net worth.
If a dealer goes to borrow money to buy land, apartment buildings, or another dealership, does gross profit come into the equation ever? Never know what banks, what buyers. Everybody looks at investors. They look at what is the cash to the bottom line, what is the profit? Basically the cash flow. What is this thing making in profit? So now, for anybody out there who owns a business, if you go from your asset being worth 8 million to 16 million, that is a pretty substantial increase in net worth, is it not? It's a good day. Yeah, it's a very, very good day. And so.
You have to understand as a manager that you're being graded on the owner of that asset's net worth.
