How EBITDA multiples actually work

What is EBITDA?

Earnings before interest, tax, depreciation and amortisation. Roughly: the profit the business makes from trading, before financing and accounting choices.

For small businesses buyers look at adjusted EBITDA, profit after reasonable add backs.

Add backs

Add backs are costs a new owner wouldn't have: owner pay above the cost of a replacement manager, one off legal bills, personal expenses run through the business.

Every add back should be backed by evidence. Buyers will check.

The multiple

Value is usually adjusted EBITDA multiplied by a number. That number moves with risk: recurring revenue, a broad customer base and a team that runs without the owner push it up; reliance on one customer or on the owner pulls it down.

Headline price vs. what you receive

Two offers with the same headline can be very different. Look at how much is paid on completion, how much is deferred, and on what conditions.