When buying an automotive business, there are many numbers and factors to look at before getting started. An important factor to consider is EBITDA, the earnings before interest, taxes, depreciation and amortization. EBITDA is an indicator of the financial performance of a company, and because of this, it can help determine the success of an automotive business. However, EBITDA is only a starting point. It should be looked at along other numbers and factors. Read on to see why.
Conduct Due Diligence Processes
Are you seriously interested in buying an automotive business? If so, it’ll be important to conduct in-depth due diligence processes on top of EBITDA. This is important so that you can examine the company’s long-term financials and get a correct assessment of what the business’s worth may be. Some of the key things to look for in the due diligence processes are consistency, growth, and quality of earnings. These factors are indicators of whether or not a company will continue to grow.
Usually, a buyer will examine three to five years of financial statements and tax returns to determine the profitability trends of a business. They also usually want to look at the business’s balance sheet history to uncover existing and potential cash flow problems. By doing these assessments, buyers get a sense of the business’s predictability by gauging whether or not the metric has gone up, down, or remained consistent.
Look at Considerations Aside from EBITDA
EBITDA is definitely a reliable metric to consider. However, it shouldn’t be the only one considered when buying an automotive business. That’s because it doesn’t fully capture the worth of a company. While it does capture many important factors, it leaves out intangibles. Intangibles are non-physical assets, such as intellectual property or brand recognition. These intangibles have the ability to impact a business over time, as well as grow its value. If they’re ignored and only EBITDA is looked at, important numbers could be overlooked.
With everything to consider, we know buying an automotive business can be a lot to take on. That’s why our business brokers at AutoCenter Sales are here to help. Our specialized business brokerage firm will work with you every step of the way to ensure all metrics are being analyzed and that you’re making the best deal. Contact our team today to get started.