Many first-time buyers put too much focus on EBITDA rather than understanding the entire economics of a business.
For those not familiar
EBITDA is an acronym that stands for Earnings Before Interest, Taxes, Depreciation and Amortization.[1]
It can be a useful tool for helping to understand how much profit a company has, and also a useful tool for thinking about what the value of a company should be. But it should never be the only tool or measurement you use.
Here are the 3 things I would look at alongside EBITDA.
1. Looking at actual profit
When looking at profit, I would not exclude depreciation or Interest, especially on a business that has high recurring depreciation. This is a real expense that you will incur.
What is depreciation
If you buy a truck that will last for 10 years. Each year you typically depreciate 10% of the trucks value, and assume after 10 years you will need to replace the truck. This assumes a linear depreciation schedule.
Assume your truck cost $100,000. Rather than accounting for the $100k truck only in the year you buy it, you would show it costing the business $10k per year on the accounting books to normalize larger purchases across their lifetime.
Where this can really hurt a buyer
Take the $100k truck example above. Assume you have a business that has a lot of trucks. Assume you have 20 trucks and the company has EBITDA of $1 million per year.
The problem is depreciation in this company is $200k per year. Now you are buying a company with $1 million in EBITDA but in reality this company only has $800k in real profit to the owner.
It can actually be even worse than this.
If you need to finance the purchase of all $2m in trucks. Now in addition to $200k in annual depreciation you also have $200k in annual interest payments on the debt for the trucks (10% interest rates).
Now the business that has a $1m EBITDA really only has a profit of $600k.
Assume that you are willing to pay 5x the profit of the business. Use the calculations below as EBITDA vs profit.
EBITDA: 5x $1 million = $5 million purchase price
Profit 5x $600k = $3 million purchase price
Some businesses have substantially more depreciation than others
Here are two real examples United Rentals has 17% of their revenue going to depreciation where CBIZ has less than 1%
For the year ended December 31, 2025:
United Rentals: The equipment rental company reported $2.670 billion of rental-equipment depreciation on $16.099 billion of revenue, roughly 16.6% of revenue.[3]
CBIZ: The accounting, tax and advisory services company reported $23.4 million of property-and-equipment depreciation on roughly $2.758 billion of revenue, about 0.85% of revenue.[4]
Here are 10 businesses that have high depreciation
Heavy Equipment Rental
Trucking and Transportation Fleets
Waste Hauling and Dumpster Rental
Commercial Laundry and Linen Services
Medical Equipment Rental
Construction Equipment Leasing
Portable Toilet and Sanitation Rental
Car and Truck Rental
Industrial Machinery Rental
Agricultural Equipment Rental
2. Customer Risk Factors
Last year's EBITDA tells you little about whether customers will stay after closing.
KPM, a U.S. accounting firm, identifies customer concentration, deferred equipment spending and dependence on key personnel as acquisition risks.[5]
I would examine:
Customer concentration: Revenue and gross profit from the largest customers
Retention: Which customers return, how often and why they leave
Contracts: Renewal dates, cancellation rights and transfer requirements
Margins: Whether recent growth produces more profit or just more work
Competition: How easily a customer can replace the company
The biggest risk may be customer concentration. If 90% of a businesses revenue comes from a single customer that is a big risk if that customer leaves.
Repeat business also needs inspection. Customers who return voluntarily are different from customers committed under an enforceable contract. Even customers under contract should be looked at as not 100% guarantee.
When looking at revenue look for customer concentration, customer retention and if possible even talk to actual customers to find out how they feel about the business.
3. Price sustainable profit
Start with the full income statement before accepting the seller's preferred earnings figure.
I would examine:
Operating income: Profit after operating expenses, including depreciation and amortization
Net income: Profit after interest, taxes and the other expenses reported in the accounts
Normalized earnings: Profit after correcting unusual items and paying realistic costs for the work the seller performs
SDE: In smaller deals under $5m you will often hear the term Seller's Discretionary Earnings. This is usually the amount that the owner of the business gets to take home as profit. Another measurement to look at for evaluating purchase price.
Book depreciation is an estimate, so test the useful lives and resale values behind it. Compare the charge with the condition of the assets and the long-term cost of maintaining productive capacity.
Separate spending required to sustain earnings from spending intended to grow them. Treating all equipment purchases as a recurring expense would understate profit when the business is expanding.
Then inspect the add-backs. The SEC warns that excluding normal recurring operating expenses can make adjusted earnings misleading.[1]
A one-time transaction expense can deserve different treatment from annual recruiting, ongoing marketing or the salary needed to replace the owner.
If you will do the owner's job yourself, separate compensation for your labor from the return on your investment.
Next, test whether those profits will continue. Customer concentration, deferred equipment spending and dependence on key personnel belong in acquisition diligence.[5]
Finally, compare after-tax operating profit with the capital invested to produce it. A high EBITDA margin can still produce a weak return if the business requires an expensive asset base.
Cash flow remains part of the review, because accounting profit and cash receipts occur on different schedules. Working capital and debt principal payments matter even though they are not income-statement expenses.
Have a quality of earnings accountant test the reported earnings and adjustments before you agree on what profit you are buying.[5]
Conclusion
EBITDA is a useful starting point. Sustainable profit requires accounting for the costs of producing it.
When comparing businesses for sale on NextCompany, look at what each company must spend, employ and own to keep earning.
I believe the right purchase price starts with profit that survives a full accounting of those costs.
Cheers
Josh Bobrowsky
Asking prices are not sale prices, and nothing here is financial or legal advice.
Sources
U.S. Securities and Exchange Commission. (2022). Non-GAAP Financial Measures, Questions 100.01 and 103.01. Division of Corporation Finance. SEC guidance on EBITDA and earnings adjustments
U.S. Securities and Exchange Commission. (2007). Beginners' Guide to Financial Statement. Investor Publications. SEC guide to depreciation and cash flow statements
United Rentals, Inc. (2026). Fourth Quarter and Full-Year 2025 Results. United Rentals Investor Relations. United Rentals' 2025 results and financial statements
CBIZ, Inc. (2026). Form 10-K/A for the Year Ended December 31, 2025, Note 5 and Consolidated Financial Statements. U.S. Securities and Exchange Commission. CBIZ's amended 2025 annual report
KPM CPAs & Advisors. (2026). Buying a Business? A Guide to Financial Due Diligence. KPM. KPM's acquisition due diligence guide