Buying A Business


What is EBITDA?

Earnings Before Interest, Tax, Depreciation & Amortisation (EBITDA).

What is PEBITDA?

Proprietor Earnings Before Interest, Tax, Depreciation & Amortisation (PEBITDA).

PEBITDA is a measure often used in SME (Small to Medium Size Enterprise/Business) sales to indicate how much a business delivers in earnings to one full time working owner/Director. Basically this means if you personally own the business, and you work full time within it, what are the total earnings to you?

Why is this important? Well, if you imagine you own and work within a business as a small business owner, and the business has EBITDA of $200,000 per annum. In addition, you are paying yourself a salary through the payroll of the business of $100,000 per annum (Business A).

Now compare that to a business that also has EBITDA of $200,000 per annum, and a full time working owner/Director, but that owner/Director only pays themselves a salary through the payroll of the business of $50,000 per annum (Business B).

The PEBITDA of each business is therefore:

·       Business A PEBITDA: $300,000 per annum.

·       Business B PEBITDA: $250,000 per annum.

Now, which business would you prefer based only on this information? Well, Business A of course.

This is an illustration of ensuring we are comparing ‘apples with apples’.

You will often see adjustments for owner/Director salaries or Director Fees or similar within Information Memorandums for small to medium size businesses. The above illustrates why.

If the owner/Director does not work in the business, but it is under a General Manager instead, if you then see reference to PEBITDA it means the wage/salary cost of the General Manager has been added back in order to show PEBITDA if the owner/Director was to be working full time in the business and took the place of that General Manager.

Why do you ask me about my experience and qualifications?

Long experience tells us that if a buyer has no experience or qualifications that relate in some way to the skills required to run the business they are enquiring upon, that they will simply not be the buyer of the business. Note these could be complementary skills from a different industry. 

So we ask you qualifying questions to see if this is a business that might be of further interest to you. If not, we will make suggestions of other businesses you might be interested in, so that we can help you find something more appropriate if possible. We will be as helpful as we can.

Can I finance my purchase of a business?

Possibly, but almost any bank will require other assets they can secure your purchase against. We are not finance brokers, but we can refer you to finance brokers.

It would be unusual to see a small to medium size business acquired where the financing is more than 50% of the purchase price.

It is actually quite rare for businesses we sell to have contracts of sale subject to finance. This means either the buyers are ‘cash’ buyers, or they have financing but have already organised this well in advance. This is the way to do it. A buyer making an offer on a business ‘subject to finance’ will be in a weak position against a competing buyer with a ‘cash’ offer.

Let us know if you would like a referral to a good finance broker and we would be happy to make an introduction for you.

We recommend Loans Australia if you require private financing. Contact Loans Australia on 1300 855 430. (Please note Bespoke Business Brokers receives no referral fees of any kind from Loans Australia.)

How do I submit an offer for a business I am interested in?

Please contact us and we will provide you with an Expression of Interest (EOI) form.