Downsides of "buying a job" below 750k+ EBITDA?

August 23, 2024

by a searcher from Yale University - School of Management in Los Angeles, CA, USA

I have read and seen many deals that float higher than 750k+ EBITDA range and would love to understand more on the risks of buying anything smaller than that.

This is assuming multiple floats around 3x EBITDA. I get it is more of a "job" once you buy a company in the lower range but if lets say I am buying a 500k ebitda business at 1.5m, and when I pay loans per year, let's estimate 200k, its still net profiting around 180k after taxes. Obviously math is not that simple but I would love to know your thoughts.

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Reply by a professional
from University of Virginia in Charlottesville, VA, USA

1. Your first business does not have to be your last
2. Getting in the game is valuable

Just food for thought

Reply by a searcher
from The University of Chicago in Nashville, TN, USA

Not all $750K EBITDA companies will be created equally but you don't generally see a company below that with much management in place, meaning that you will be very involved in day-to-day operations. The other downsides are that the transaction costs are fairly similar for $750K EBITDA or $1.5M EBITDA transactions so you might as well go bigger and smaller companies have a statistically higher failure rate. On the positive side, multiples are generally lower, you are avoiding competition with PE, and you may not have to raise investor capital.

The main thing to look out for is the "key man risk" with the owner, there are many smaller companies out there that once the owner leaves with their network and sales experience there isn't much left for the buyer.

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