BuildExitReady, an advisory division of 7Mills
← Exit glossary

EBITDA

Also known as Earnings Before Interest, Tax, Depreciation and Amortisation

EBITDA stands for earnings before interest, tax, depreciation and amortisation. It is a measure of a business's operating profit that removes financing costs, tax and non-cash accounting charges, so it shows roughly how much the core trading activity earns before those items are taken into account.

Why it matters at exit

Most buyers value an owner-managed business as a multiple of EBITDA, so the figure you report becomes the base on which the sale price is built. Buyers usually work from an “adjusted” or “normalised” EBITDA: they add back genuine one-off costs and any above-market pay you take, and they strip out personal expenses run through the company, to see the earnings a new owner would actually inherit. If your records cannot support those adjustments with clear evidence, the buyer will discount or reject them, and a lower agreed EBITDA at the same multiple means a lower price. Arriving at a clean, defensible EBITDA well before you go to market is one of the most direct ways to protect what the business is worth.

Relates to the Mill Financial Clarity →

Frequently asked questions

What is the difference between EBITDA and net profit?
Net profit is what remains after interest, tax, depreciation and amortisation have been deducted, so it reflects how the business is financed and taxed. EBITDA removes those four items to show operating performance on its own, which makes it easier to compare one business with another regardless of borrowing levels or tax position.
What is "adjusted" EBITDA and why do buyers rely on it?
Adjusted (or normalised) EBITDA takes the reported figure and corrects it for items that will not continue under a new owner, such as a one-off legal cost, an above-market salary the owner pays themselves, or private expenses booked to the company. It aims to show sustainable earnings a buyer can reasonably expect, which is why it, rather than the raw number, usually drives the valuation.

See how your business scores against a buyer.

The free 7 Mills Score, 15 minutes, results in writing.

Take the Free Score →