VIEWpoints-Issue 2-2024 | Page 8

Understanding & Calculating EBITDA
insulated against economic downturns , and thus , more attractive to buyers .
• Experienced and Capable Management Team Strong , decentralized management teams are valuable . If a company is reliant on key people who may not stay with the company , buyers may require an earnout or ongoing consulting agreements with the sellers as a condition of the sale . Also important is having agreements and incentives in place to keep management on board to help run the company post-sale . is in place . This also positions a seller to provide reliable information for diligence and helps them run the business smoothly prior to the transaction .
• Asset Management Potential buyers look for efficient collections and inventory management , which can lower working capital required to be left in the business and allow a seller to keep more cash in a transaction . Company equipment or assets not currently in use should also be written off or sold prior to entering a transaction .
• Proprietary Products and Services Companies with proprietary products or services appeal to potential buyers because it means the company is poised for future growth . This may include patented or trademarked products or services , or a unique know-how or barriers to entry to implement . These things also bring distinct competitive advantages , further driving business value . To ensure business value is being increased over time , it ’ s important to maintain these unique offerings by proactively reinvesting and maintaining them .
• Technology and Systems Maintaining the latest technology in the business will not only help with post-close integration but will also provide a buyer with security knowing a secure IT infrastructure
Closing the Gap
Often a significant gap exists between what an owner thinks his or her business interest is worth and what it realistically will sell for . If you are thinking of selling your business soon , contact our M & A advisors to get insightful ideas on how to close the gap and start driving up the value of your business today
About the Author
JENNIFER MAILHES , CPA
MANAGING DIRECTOR , DOEREN MAYHEW CAPITAL ADVISORS mailhes @ doeren . com
Jennifer brings more than 20 years ’ experience in areas such as strategic growth , mergers and acquisitions , due diligence and more . She helps clients achieve their strategic or exit goals , develop growth strategies and identify exit planning opportunities .

Understanding & Calculating EBITDA

Earnings Before Interest , Taxes , Depreciation and Amortization ( EBITDA ) is widely used to measure the profitability of a company , especially throughout the M & A process . Investors want to know the historical profitability of your business , and EBITDA helps them assess how much money a company is making before interest , taxes , depreciation and amortization is applied . EBITDA is calculated by using the following formula :
EBITDA = Operating Income + Interest + Taxes + Depreciation + Amortization
As you think about entering the M & A market , we encourage you to work with an M & A advisor to help “ normalize ” or adjust your EBITDA calculation to ensure you have a realistic financial snapshot of your business profitability . Typical EBITDA adjustments include owner salaries and employee bonuses , any other owner ’ s personal expenses or one-time expenses , such as write-offs of bad debt , legal fees or an unusual event or repair costs from a natural disaster .
Securities offered through Doeren Mayhew Capital Advisors , LLC . Member FINRA & SIPC . Doeren Mayhew Capital Advisors and Doeren Mayhew have common ownership .
VIEWPOINTS : ISSUE 2 2024 | 03