To determine a good investment, buyers look at ROI. To do that they need to determine the business’s future cash flow. Future cash flow (sustainable EBITDA) is what a buyer gets after taking over your business. This is calculated by:
Your business’s net income before taxes
+ interest on long-term debt
+ depreciation and amortization
+ non-typical, non-recurring business operations expenses
+/- revenues or expenses related to the owner not the business
– estimated capital expenditure requirements.
This gives an idea of where buyers would stand once you hand over the keys and how long it would take them to break even on their investment.
If you would like more information, we’re always here to help.