Why I Won't Buy A Business Below $750k EBITDA
The $750k EBITDA floor is the firmest line in our buy-box. Here is the operating math behind why I will not move it, no matter how good the asking price looks.
I get asked at least once a month why I will not consider acquiring a business with EBITDA below $750k, even when the asking price looks attractive on paper. It is not arbitrary. It is the threshold below which the operating math stops working, and I have watched enough acquirers learn that lesson the hard way to know I do not want to repeat it.
What $750k EBITDA actually has to do
Once we close on a business, that EBITDA has to fund five separate things at the same time. Reinvestment in equipment and systems, retention compensation for the people we want to keep, ordinary working capital, debt service if there is acquisition financing, and a reasonable margin of safety against the inevitable bad quarter.
Below $750k, those five draws compete for the same pool. Reinvestment gets cut, retention gets squeezed, and the operating system we promised the seller we would build never gets built. The seller's legacy suffers, the acquirer underperforms, and everybody loses.
Why "almost there" deals are the most dangerous
The hardest version of this conversation is the business with $600k or $700k of EBITDA where the seller's case is "with a few small changes you can easily get this to a million." I have heard that pitch hundreds of times, and what I have learned is that the few small changes always cost real money up front, take real time to land, and depend on the operator getting them right under the pressure of new ownership.
If the operating uplift were genuinely easy, the seller would have already done it. The asking price reflects an assumption that we will do it, which means we are paying for our own future work.
Where the rule does flex
The number is $750k of normalized EBITDA. If the trailing twelve months show $700k but a one-time owner-related cost (an inflated salary, a personal vehicle, a defunct lease) brings the normalized number above $750k, that is a different conversation. We will go through the add-backs honestly with the seller's accountant.
Below $750k normalized, we pass.
What this discipline produces
I have walked away from more than a hundred deals because of this floor. I do not regret a single one. The deals we have actually closed share a common feature: the underlying earnings were strong enough that we could afford to invest in the business properly during the first three years, which is when most of the long-term value gets locked in.
Discipline at the entry point is the cheapest form of risk management I know.
Written by Ramy Stephanos, SFAdvisor - Acquire.