EBITDA

EBITDA is pronounced ee-BIT-dah, and it shows up in business valuations, loan conversations, and investor discussions far more than in day-to-day small business management.

What it strips out and why

Interest expenses vary based on how a business is financed. Taxes vary based on structure and jurisdiction. Depreciation and amortization are non-cash accounting entries. EBITDA strips all of these out to show what the business earns from operations alone, making comparisons across businesses more meaningful.

When EBITDA matters for small businesses

If you're applying for an SBA loan, exploring a business sale, or talking to a buyer or investor, EBITDA will come up. Business valuation multiples are often expressed as a multiple of EBITDA — a business might sell for 3x or 5x EBITDA depending on the industry.

EBITDA vs. pre-tax profit

For day-to-day management, Greg Crabtree argues that pre-tax profit is a more honest and actionable metric than EBITDA — because it includes the real costs of running your business. EBITDA is a useful external communication tool, not an internal management one.