M&A Knowledge Base
What is EBITDA?
EBITDA is the single most important metric in determining what your business is worth. Understanding how it's calculated, adjusted, and applied is essential for any business owner considering a sale or exit.
EBITDA Explained
EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization — strips away financing decisions, tax strategies, and non-cash accounting entries to reveal the true operating cash flow of a business. This standardized metric allows apples-to-apples comparison across companies regardless of their capital structure.
The EBITDA Formula
Net Income + Interest + Taxes + Depreciation + Amortization = EBITDA
For a business owner considering a sale, the more important figure is adjusted EBITDA, which adds back owner-specific expenses, one-time costs, and normalizes compensation to market rates. This adjusted figure represents what a new owner could expect to earn.
Common EBITDA Adjustments
- Above-market owner compensation → adjusted to market-rate salary
- Owner personal expenses run through the business
- One-time legal, consulting, or restructuring costs
- Non-recurring revenue or expenses
- Related-party transactions at non-market rates
- Rent adjustments if property is owner-occupied
EBITDA Multiples by Industry
Enterprise value is calculated by multiplying adjusted EBITDA by an industry-appropriate multiple. These multiples reflect the market's assessment of growth potential, risk, and quality within each sector:
Common Questions
Frequently Asked Questions
What does EBITDA stand for?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It represents the operating cash earnings of a business before accounting for capital structure, tax strategies, and non-cash expenses.
Why is EBITDA important for selling a business?
EBITDA is the primary metric buyers and acquirers use to determine business value. Enterprise value is calculated by applying an industry-specific multiple to your adjusted EBITDA. A higher EBITDA — and a higher multiple — directly translates to a higher sale price.
What is adjusted EBITDA?
Adjusted EBITDA normalizes your reported EBITDA by adding back owner-specific expenses (above-market salary, personal expenses run through the business, one-time costs) and removing non-recurring items. This gives buyers a true picture of the business's earning power under new ownership.
What is a good EBITDA margin?
EBITDA margins vary significantly by industry. Service businesses typically range from 15–30%, while manufacturing might be 10–20%. Technology/SaaS companies can exceed 30%. What matters most is how your margin compares to industry benchmarks and whether it's trending up.
How do EBITDA multiples work?
A multiple is applied to your adjusted EBITDA to determine enterprise value. For example, a business with $2M EBITDA at a 5x multiple would have an enterprise value of $10M. Multiples range from 3x–8x+ depending on industry, size, growth, and quality factors.
Related Resources
Business Valuation
Full valuation guide
How to Sell a Business
Step-by-step guide
Sell a Business in Florida
Florida M&A advisory
EBITDA Multiples Guide
How multiples work
Quality of Earnings
QoE reports explained
Florida M&A Benchmarks
Industry data & multiples
Valuation Calculator
Estimate your value
M&A Glossary
All key terms
Want to Know Your EBITDA?
Get a confidential, no-obligation EBITDA analysis from our team.
Request EBITDA Analysis