If you are considering selling your business, you will encounter the term EBITDA repeatedly. It is the primary metric used by buyers — from private equity firms to direct acquirers like CMBB — to evaluate the earnings power of a business. Understanding what EBITDA is, how it is calculated, and how it affects your sale price is essential preparation for any business owner contemplating an exit.
What EBITDA Stands For
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It is calculated by taking a company's net income and adding back interest expense, income tax expense, depreciation, and amortisation. The result is a measure of the operating profitability of the business, stripped of financing decisions (interest), tax strategies (taxes), and non-cash accounting charges (depreciation and amortisation). It is the closest approximation to the cash-generating ability of the business from its core operations.
How EBITDA Multiples Work
Buyers apply a multiple to EBITDA to arrive at an enterprise value for the business. The multiple reflects the buyer's assessment of risk and growth potential — higher multiples are paid for businesses with recurring revenue, diversified customer bases, strong management teams, and clear growth opportunities. Lower multiples are applied to businesses with customer concentration, key-person dependency, or cyclical revenue. The specific multiple for your business depends on a range of factors that CMBB will explain in full when we present our offer.
Adjusted EBITDA: What Buyers Actually Use
Most buyers do not use reported EBITDA directly. They use 'adjusted' or 'normalised' EBITDA, which adds back one-time expenses, owner's personal expenses run through the business, above-market owner compensation, and other non-recurring items. This adjusted figure represents the true earnings power of the business under normal operating conditions. CMBB's valuation process includes a thorough normalisation analysis, and we share our adjustments transparently with sellers.
How to Increase Your EBITDA Before Selling
The most effective ways to increase your EBITDA — and therefore your sale price — are: reducing discretionary expenses, removing personal expenses from the business, growing revenue through existing customer relationships, improving gross margins through pricing or cost reduction, and reducing owner dependency by building a strong management team. Even a modest increase in EBITDA can have a meaningful impact on your sale price when multiplied by the applicable multiple.
CMBB offers confidential, no-obligation valuations for business owners in Canada and the United States. Start a conversation today.
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