Sheehan & Associates, P.L.C.

What buyers consider before purchasing a company

A business owner in Michigan who is putting their company on the market might want to become familiar with the numbers that buyers consider before purchasing a company. By understanding the numbers that influence a buyout, a business owner may be better prepared to make sure that their company is seen as an attractive investment.

One of the most important pieces of information that a buyer will consider is a company's earnings before interest, taxes, depreciation and amortization, or the EBITDA. Comparing the difference between a company's EBITDA and its annual revenue is a major factor in business valuation. For instance, a company may have an EBITDA margin of 10 percent. If operations at the company can be made more efficient, the EBITDA margin could climb to 12 percent, and the company will become more valuable.

A buyer will also look at a multiple of the EBITDA that is based on the expected annual increase in a company's sales. Because the buyer will probably use credit for part of the purchase, they will also consider how much leverage the company will give them to repay the debt that they acquire. Another crucial number that is considered during a buyout is what percentage of a company the buyer is actually purchasing.

Before putting a company on the market, a business owner might want to speak with an attorney about ways to increase the value of their company. A business owner may also wish to have legal assistance during purchase negotiations to ensure that they are getting a fair deal. If only a percentage of a company is for sale, an attorney may be able to help with business planning during the transition.

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