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re: Is this business a good buy?
Posted on 1/23/24 at 9:45 am to Double Oh
Posted on 1/23/24 at 9:45 am to Double Oh
quote:
Yea i always thought it was 2.5x the earnings on what a business is worth.
There are a lot of other factors that need to be considered, and that 2.5x is typically dependent on industry.
OP needs to start with Net Income, the adjust for any owner expenses; does the owner run personal cell phone, internet, gas bills, health insurance, salary... through the company. He will then need to figure what additional expenses he'll bring to the company (his salary, health insurance...). Then calculate the EBITDA. This is typically the starting point for determining the earnings multiplier.
He will also need to consider his capital budget for the next 5 years and the effect on cash flow, and the amortization schedule for the new loan.
The adjusted EBITDA, future capital budget & amortization schedules will give OP a baseline to determine if it's a good buy or if he'll basically be working to pay the bank.
Posted on 1/23/24 at 10:05 am to Weekend Warrior79
Thanks
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