What do I Look For Other Than SDE & EBITDA?

April 18, 2024

by a professional from The University of Texas at Austin - Red McCombs School of Business in Austin, TX, USA

When you first see a higher than average SDE or EBITDA the business can be alluring. But remember that number is only part of the story. Keep asking questions to understand the financials and the risks?

Some of the questions to ask:

Is there customer concentration?
Are margins high because the owner does most of the work?
Are the customers sticky?
Is the industry growing?
Will the clients leave with the owner?
Are the numbers even true?

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Reply by a lender
from Pennsylvania State University in Tampa, FL, USA

Look out for change of control provisions with vendor and customer contracts if you’re relying upon those while working through projections. These vary industry by industry but hearing that “everything will stay the same” isn’t enough.

Reply by a searcher
from Texas A&M University in Houston, TX, USA

Probabilistically you won't find a perfect company - so knowing how to structure a deal is also very important to ensuring their involvement / buy in post close

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