When buying or selling a business, EBITDA is one of the most commonly referenced metrics. But what does it really mean, and why is it so important?
At George & Company, we help business owners and investors understand EBITDA to maximize business value and make informed decisions in mergers and acquisitions (M&A).
What is EBITDA?
EBITDA stands for:
Earnings Before Interest, Taxes, Depreciation, and Amortization.
It’s a measure of a company’s operating performance that focuses on cash flow generated by the core business, ignoring non-operational costs like debt or taxes.
- Provides a clear view of operational profitability
- Helps investors and buyers compare businesses across industries
- Forms a basis for business valuation and deal negotiations
Think of EBITDA as the “business engine” — it shows how much profit the company generates before outside factors are applied.
What is Adjusted EBITDA?
Adjusted EBITDA takes the standard EBITDA calculation a step further by removing non-recurring or owner-specific expenses. This provides a more realistic picture of ongoing earnings potential.
Common adjustments include:
- Owner salaries above industry norms
- Personal expenses charged to the business (cars, health club memberships, travel)
- One-time or unusual costs that are unlikely to recur
There’s no universal standard for adjusted EBITDA. Buyers and sellers must agree on the adjustments during the deal process.
Why EBITDA Matters in M&A
EBITDA is central to business transactions because it:
- Determines valuation multiples in negotiations
- Shows operational efficiency without the influence of financing or tax structures
- Assists in due diligence by highlighting true cash-generating potential
A strong EBITDA can attract qualified buyers and increase the likelihood of a higher sale price.
Actionable Takeaways for Business Owners
- Know your EBITDA – Track it regularly to understand your business’s financial health.
- Review adjusted EBITDA – Identify and agree on adjustments that reflect true ongoing profitability.
- Prepare documentation – Buyers will request detailed financials; clean records make valuation easier.
- Leverage expert guidance – Experienced M&A advisors can help maximize EBITDA value and navigate negotiations.
Partner with M&A Experts
Understanding EBITDA is critical for successful business sales, acquisitions, and valuations. At George & Company, we help owners and investors analyze EBITDA, determine fair valuation, and negotiate deals with confidence.
Contact us today for a confidential consultation and take the first step toward a successful transaction.