What is EBITDA—And Why It Matters When Selling Your Business
- Mark Hartmann
- Apr 11
- 5 min read
As someone who built and sold a business before becoming an M&A advisor, I've been in your shoes. If you're a business owner eyeing retirement, you've heard the term EBITDA pop up in meetings or conversations about valuation.
If you're like many business owners I work with, it might sound like just another bit of financial jargon.
So let’s break it down.
What Exactly is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. In plain English? It’s a way to measure your company’s earnings from core operations—before things like interest payments, tax strategies, or depreciation schedules muddy the waters.
Buyers like EBITDA because it helps them understand how much your business makes without the noise from accounting choices or financing decisions.
Here’s the formula:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Let’s look at a quick example:
If your business reported:
• $1M in net income
• $200K in interest
• $300K in taxes
• $150K in depreciation
• $50K in amortization
Then, your EBITDA would be $1.7M.
Why Buyers Care So Much About EBITDA
When buyers look at your business, they want to know what kind of cash flow it generates. Net income can be misleading—one-time expenses, creative tax planning, or lingering debt can throw it off.
EBITDA strips all that out. It gives buyers a clearer picture of your company’s earning power, and more importantly, it’s often the starting point for determining your business's worth.
The Role of EBITDA in Valuation
When buyers ask, “What’s this business worth?” the answer usually involves multiplying EBITDA by a certain number. That number—called the EBITDA multiple—depends on your industry, company size, growth potential, risk, and current market conditions.
For instance, if your business has $1.5M in EBITDA and the market commands a 4x multiple, it might be valued around $6M. If your company has substantial recurring revenue, outstanding leadership, and a solid market position, that multiple could go even higher—maybe 5x or 6x.
But here’s the catch: not all EBITDA is created equal.
What’s Adjusted EBITDA?
Adjusted EBITDA removes personal, one-time, or non-operating expenses to show what a buyer can reasonably expect to earn after taking over. That might include:
• Owner perks (beyond fair market salary)
• One-off legal or consulting fees
• Family members on the payroll who don’t actually work in the business
• Sponsorships or charitable donations
• COVID-related expenses
As your advisor, I work closely with your CPA or bookkeeper to recast your financials so they reflect your true earnings potential. This isn’t smoke and mirrors—it’s about transparency. Buyers appreciate that kind of honesty, and it often leads to a better price and a smoother sale.
Why Retirement-Aged Owners Should Care
If you’re in your 60s or 70s, you’re probably thinking about how—and when—you’ll transition out of your business. You’ve put in the years. You want to maximize value, take care of your team, and leave behind something that lasts.
This is where EBITDA becomes your best friend.
When it’s accurately adjusted and positioned, it helps you:
• Avoid leaving money on the table
• Attract the right kind of buyers
• Gain clarity on what your business is worth
Want to Boost Your EBITDA? Here’s How.
If you’re planning to sell in the next few years, here are a few simple things that can move the needle:
1. Clean up your financials. Consistency and clarity matter. A CPA who understands exit planning is an excellent investment.
2. Cut unnecessary expenses. If something will not be carried over to a new owner, consider trimming it now.
3. Document everything. The more you can prove, the more confidence buyers will have.
4. Build recurring revenue. Predictability is worth a premium.
5. Start delegating. If everything runs through you, that’s a red flag for buyers. Empower your team.
6. Avoid big last-minute purchases. Unless they're clearly strategic, they could throw off your numbers and raise concerns.
What EBITDA Doesn’t Show
EBITDA is a great tool—but it’s not the whole story. It doesn’t account for:
• Capital expenditures
• Debt repayments
• Working capital needs
That’s why buyers also look at things like cash flow, your balance sheet, and broader market trends. But make no mistake: EBITDA is what sets the tone. It’s the headline number in any valuation conversation.
More Than a Number
Selling your business isn't just about numbers—it's personal. I know because I've done it. It's about protecting your legacy, taking care of your people, and confidently entering the next chapter of life.
Understanding EBITDA helps you:
• Speak the buyer’s language
• Negotiate from a position of strength
• Exit on your terms—with clarity and dignity
Thinking About Selling?
If you're considering a sale in the next 1–3 years, now's the time to get your EBITDA in shape. At HartmannRhodes, we specialize in selling companies worth $1M-$25M. I've sold my business, and I help owners like you do the same daily.
Let’s have a conversation about what your EBITDA says—and how to make it say even more.
Blog: What is EBITDA—And Why It Matters When Selling Your Business
Mark Hartmann is a former business owner turned M&A advisor who knows firsthand what it takes to build, grow, and sell a successful company. A three-time Inc. 5000 CEO, Mark did just that before navigating its eight-figure sale—giving him a rare perspective that sets him apart from most brokers. Today, he helps owners of companies valued between $1M and $25M plan and execute smooth, profitable exits.
Mark understands that selling a business isn’t just a financial decision—it’s personal. That’s why he works closely with owners to protect their legacy, maximize value, and make the transition on their terms. He holds an MBA from Eastern University, a Master’s Degree in Organizational Change Management from St. Elizabeth University, and a Graduate Certificate in Executive Coaching from Columbia University. Some of his professional credentials include Certified Mergers & Acquisitions Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB).
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