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As a business owner, you’ve likely heard the term “EBITDA” tossed around in conversations about business valuation, private equity, or selling your company. But what does it really mean — and why is it so important when it comes to understanding the true earnings power of your business?
48North Partners specializes in working closely with business owners like you to navigate the often-confusing world of mergers and acquisitions. In this post, 48North Founder Chapin Newhard walks you through the basics of EBITDA, the importance of Adjusted EBITDA, and what it means for the value of your company.
What is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
In simpler terms, it’s a way to measure your company’s profitability without worrying about:
- Interest payments on loans
- Taxes owed to the government
- Depreciation (the gradual aging of your equipment)
- Amortization (the fading value of intangible assets like contracts or brand names)
By removing these variables, EBITDA helps buyers and investors focus on how well your business actually performs operationally.
Think of EBITDA as your company’s “core earnings” — the money your business generates simply from doing what it does best.
Why is EBITDA Important?
When potential buyers evaluate a company, they often use EBITDA as a starting point to understand:
- The company’s cash flow potential
- Its ability to repay debt
- Its valuation (many businesses are valued as a multiple of EBITDA)
If you’ve ever heard someone say “businesses like yours trade at 5x EBITDA,” they’re talking about applying a multiple to your EBITDA to estimate your company’s enterprise value.
What is Adjusted EBITDA?
For most owner-operated businesses, the story doesn’t stop at “raw” EBITDA. Owners often run certain personal or one-time expenses through the business, like:
- Personal vehicles
- Family members on payroll
- One-time legal fees
- Non-recurring marketing campaigns
Adjusted EBITDA is simply your EBITDA number, “cleaned up” to reflect what a new owner could reasonably expect to earn going forward.
In other words, it removes:
- One-time, unusual, or personal expenses
- Items that won’t continue after a sale
Adjusted EBITDA often gives a more accurate picture of your company’s true earnings power — and in most cases leads to a higher valuation as many of these expenses are “added back” to the EBITDA number.
Why This Matters for Business Owners
When you eventually decide to sell your company — whether next year or five years down the road — your Adjusted EBITDA will heavily influence:
- How buyers view your business
- The offers you receive
- How negotiations unfold
Understanding your EBITDA and Adjusted EBITDA today gives you more control over your business’s future value.
At 48North Partners, Chapin Newhard and his team help business owners prepare for success by identifying areas to maximize value, clean up financials, and position the business in the best possible light.
Thinking About the Future?
Whether you’re actively thinking about selling or just curious about what your business could be worth, it’s never too early to start understanding your EBITDA.
We’d love to have a conversation.
Reach out to Chapin Newhard and 48North Partners to schedule a confidential discussion about your company’s value, your options, and how they can help you plan for the future — on your terms.
48North Partners — Helping Business Owners Navigate What’s Next.