What Is EBITDA? A Simple Guide for Small Business Owners
You’ve probably heard the term “EBITDA” tossed around on podcasts or in business finance articles—but what does it actually mean?
If you’re a small business owner or entrepreneur, understanding EBITDA can help you better evaluate your company’s performance, set stronger goals, and even prepare for funding or a sale.
Let’s break it down in plain English.
📊 What Does EBITDA Stand For?
EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization
It’s a financial metric that shows how much profit your business makes from operations alone, before considering costs like loans, taxes, and equipment depreciation.
It’s often used by investors and lenders because it gives a clearer picture of your business’s core profitability, regardless of financing structure or accounting decisions.
💡 Why Should You Care About EBITDA?
Even if you're not planning to sell your business or pitch to investors, EBITDA can still be a powerful tool:
Compare Performance Over Time – Track how well your business runs, independent of outside variables.
Understand Operational Profitability – Focuses on the money you’re making from your actual products or services.
Prepare for Loans or Investors – Many lenders and buyers look at EBITDA when evaluating business health.
Spot Financial Red Flags – A declining EBITDA may signal inefficiency or trouble within the core business.
✅ How Is EBITDA Calculated?
Here's a basic formula:
Net Income
Interest
Taxes
Depreciation
Amortization
= EBITDA
If you’re using QuickBooks or another accounting software, you can pull most of this info from your financial reports—or let a bookkeeper like Dr. Bryan Raya calculate it for you.
🧠 FAQ: EBITDA for Small Business Owners
Q: Is EBITDA the same as profit?
A: Not exactly. EBITDA focuses only on operational profit, while net profit includes taxes, interest, and other costs.
Q: Should every business track EBITDA?
A: If you're planning to grow, seek funding, or simply improve profitability, yes—it’s a helpful metric.
Q: Is EBITDA a number I can pull from my P&L?
A: Not directly. You’ll need to adjust net income by adding back depreciation, amortization, interest, and taxes.
📞 Want help understanding your numbers and calculating your EBITDA?
Book a FREE call with Dr. Bryan Raya, Certified QuickBooks ProAdvisor, and get clear on your financials today.
Let’s start Doing Business Right!
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