EBITDA and Your Business Sale

What Is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It's a way to measure how much money your business actually makes from its core operations, stripped of financing decisions, tax strategies, and accounting rules that vary from owner to owner.

Think of it as your business's earning power in its simplest form. A buyer looking at your company wants to know: if I owned this business, how much cash would it generate for me each year? EBITDA gets them close to that answer.

This comes from hundreds of real buyer-seller conversations we've facilitated on Rejigg. We see what happens when owners understand their EBITDA cold, and we see what happens when they don't. The difference shows up fast.

Why Buyers Fixate on EBITDA

Buyers use EBITDA because it levels the playing field. Every owner structures their business differently.

One owner finances all their equipment, another pays cash. One takes an aggressive depreciation schedule, another doesn't. EBITDA strips those choices out so buyers can compare businesses apples-to-apples.

It's also the number that drives your valuation. Buyers take your EBITDA and multiply it by a number (called a "multiple") to land on what your business is worth.

A business doing $500K in EBITDA at a 4x multiple is worth roughly $2M. That same business at a 5x multiple is worth $2.5M. The EBITDA number is the foundation of that entire calculation.

When a buyer asks about your financials, EBITDA is usually the first number they're looking for. If you can explain it clearly and back it up with clean records, the conversation moves forward. If you can't, buyers start wondering what else you haven't thought through.

How to Calculate EBITDA for Your Business

Start with your net income from your P&L (profit and loss statement). Then add back four things:

1. Interest expenses on any loans or lines of credit
2. Taxes (federal, state, local income taxes)
3. Depreciation (the annual write-down on physical assets like equipment and vehicles)
4. Amortization (the write-down on intangible assets like patents or customer lists)

Here's a simple example. Say your P&L shows:

• Net income: $350,000
• Interest: $25,000
• Taxes: $80,000
• Depreciation: $40,000
• Amortization: $5,000

Your EBITDA is $500,000. That's the number you'd bring to a buyer conversation.

If you use QuickBooks, Rejigg's QuickBooks integration can pull your financial data automatically and calculate this for you. No manual spreadsheets, no guessing which line items go where.

Add-Backs: What Helps and What Hurts

Your raw EBITDA is just the starting point. Most owners run personal expenses through their business, and those need to be "added back" to show the true earning power. This adjusted number is sometimes called Seller's Discretionary Earnings (SDE) for smaller businesses, or adjusted EBITDA.

Add-backs that buyers accept without much pushback

Owner salary above market rate. If you pay yourself $300K but a replacement manager would cost $150K, that $150K difference is a legitimate add-back. Buyers expect this one.

One-time expenses. A lawsuit settlement, a roof replacement, a one-time consulting project. If it won't recur under new ownership, it's fair to add back.

Personal expenses run through the business. Your car, your cell phone, your health insurance. These are common and generally accepted, as long as you can document them clearly.

Family members on payroll who don't work in the business. This is more common than you'd think. If your spouse is on payroll but doesn't have an operational role, that salary is an add-back.

Add-backs that raise red flags

Excessive or vague personal expenses. "About $50K in personal stuff" doesn't fly. Buyers want line items. If you can't break it down, they'll assume the worst.

Revenue adjustments. Claiming you could charge more or that revenue is "understated" is speculation, not an add-back. Buyers value what the business actually does, not what it could do.

Cost cuts you haven't made. Telling a buyer "you could easily cut $100K in overhead" invites the question: then why haven't you? Future savings aren't add-backs.

Normalizing a bad year. If revenue dropped 20% and you want to add back the difference, that's not how it works. Buyers will look at the trend, and trying to explain away a bad year with add-backs erodes trust fast.

We've seen plenty of deals where a clean, well-documented set of add-backs actually increased the sale price significantly. We've also seen deals fall apart because an owner got aggressive with add-backs and lost the buyer's confidence. Document everything, keep it honest, and let the numbers speak.

EBITDA Preparation: What to Get Right

These are the patterns we see repeatedly in buyer-seller conversations on Rejigg. All of these are straightforward to address with a little preparation.

Not knowing the number

This is the most basic one, and it comes up more often than you'd think. An owner gets on a call with a buyer and can't state their EBITDA clearly.

Sometimes they confuse it with revenue. Sometimes they confuse it with net income. Knowing your EBITDA cold gives buyers confidence in your financial awareness.

Before you talk to any buyer, know your EBITDA for the last three years. Not roughly. Exactly.

Mixing up EBITDA and cash flow

EBITDA is not the same as free cash flow. It doesn't account for capital expenditures, changes in working capital, or debt payments. A business can have strong EBITDA and still be cash-strapped if it requires heavy ongoing equipment investment. Buyers will figure this out during diligence, so you should understand the distinction before they bring it up.

Inflating add-backs

We covered this above, but it's worth repeating because it can slow down or stall deals. When you present add-backs that don't hold up under scrutiny, the buyer doesn't just reject those specific items. They start questioning every other number you've given them. Keeping add-backs honest and documented preserves the trust that moves deals forward.

Ignoring the trend

A single year of EBITDA tells a partial story. Buyers want to see the trajectory.

Is EBITDA growing, flat, or declining? If it spiked one year because of a one-time contract, they'll want to understand that. If it's been declining, they'll want to know why and whether it's fixable.

Prepare a clear three-year view of your EBITDA with explanations for any significant swings. This saves time and builds confidence.

Presenting messy financials

Your EBITDA calculation is only as good as the books behind it. If your P&L has categories like "miscellaneous" with six figures in them, or if personal and business expenses are tangled together, buyers will discount your EBITDA no matter what number you present.

Clean books signal a well-run business. Rejigg's data room lets you organize and share your financials securely, so buyers can verify your numbers without the back-and-forth of email attachments.

How EBITDA Affects Your Valuation Multiple

Your EBITDA determines the base. The multiple determines the final price. But the two are connected in ways most owners don't realize.

Businesses with higher EBITDA generally command higher multiples. A company doing $2M in EBITDA will typically get a better multiple than one doing $400K, even in the same industry. Larger businesses are seen as less risky because they're usually less dependent on the owner and have more diversified revenue.

Other factors that push multiples up or down:

• Revenue concentration. If one customer represents 30%+ of revenue, expect a lower multiple. Buyers see that as a risk.
• Owner dependency. If the business can't run without you for two weeks, that suppresses the multiple. Buyers are paying for a business, not a job.
• Growth trajectory. Consistent year-over-year growth supports a higher multiple. Flat or declining EBITDA pushes it down.
• Industry. Some industries just trade at higher multiples than others. SaaS businesses trade higher than construction companies. That's the market.
• Recurring revenue. Contracted, recurring revenue is worth more than project-based revenue. A $1M EBITDA business with 80% recurring revenue will fetch a better multiple than one with 80% one-time project revenue.

Rejigg's free valuation calculator uses real transaction data to estimate your multiple based on your industry, size, and financial profile. It takes about five minutes and gives you a realistic range, not a number designed to make you feel good.

You can also read our full guide on how to value your business for sale for a deeper look at how multiples work.

What to Prepare Before Buyer Conversations

Buyers who are serious about acquiring a business will ask pointed questions about your EBITDA within the first or second conversation. Here's what you should have ready.

Three years of P&L statements. Formatted consistently, with clear line items. If you've changed accounting methods or categories mid-stream, note that.

A written add-back schedule. List every add-back with the dollar amount, the category, and a one-sentence explanation. "Owner vehicle lease, $12,000/year, personal use Mercedes" is the level of detail buyers want.

EBITDA by year with a trend narrative. Don't just hand over three numbers. Explain the story. "EBITDA grew from $380K to $520K over three years, driven by two new commercial contracts we signed in 2024."

Answers to the obvious follow-up questions. Why did EBITDA dip in 2024?

What's the biggest single expense? How much of your revenue is from your top three customers? Anticipate these and have clear, honest answers.

A realistic valuation expectation. Owners who come in with an EBITDA-based valuation range, supported by real comparables, signal sophistication. Owners who come in with a number based on what they "need" to retire signal the opposite.

All of this goes into your data room on Rejigg, where buyers can review financials under NDA before your first conversation even happens. This way, when you do get on a call, the buyer has already seen your numbers and the conversation can focus on the business itself.

Getting It Right

EBITDA is the single most important number in your business sale. Buyers use it to value your company, compare it against other opportunities, and decide whether to move forward. Getting it right, explaining it clearly, and backing it up with clean documentation is the difference between a smooth process and one that stalls.

You don't need a broker to present your EBITDA properly. Rejigg gives you the tools to do it yourself: a free valuation calculator to understand your range, a data room to share financials securely, and direct access to vetted buyers who are ready to have real conversations. Sellers list free. Buyers pay, not you.

Frequently Asked Questions

Is EBITDA the same as profit?

EBITDA is not the same as net profit. Net profit (your bottom line) includes interest, taxes, depreciation, and amortization. EBITDA strips those out to show the operating earning power of the business before those deductions. Buyers prefer EBITDA because it removes variables that change based on how each owner structures their finances.

What is a good EBITDA for selling a business?

There's no universal "good" number, but most buyers on Rejigg are looking at businesses with $250K or more in annual EBITDA. Higher EBITDA generally means higher valuation multiples. A business with $1M in EBITDA will attract more buyers and stronger offers than one at $300K, all else being equal.

How do I calculate EBITDA from my tax return?

Start with your net income on your tax return (Schedule C for sole proprietors, Form 1120 for corporations). Add back interest expense, income tax provision, depreciation, and amortization. These line items are usually broken out clearly. If they're not, your accountant can identify them in about ten minutes.

What EBITDA multiple should I expect?

Multiples vary by industry, business size, and growth profile. Small businesses ($500K-$1M EBITDA) typically trade at 3x-5x. Larger businesses ($2M+ EBITDA) can reach 5x-8x or higher. Use Rejigg's free valuation calculator with your actual financials to get a range based on real transaction data.

Should I hire an accountant to calculate my EBITDA?

If your books are clean and you understand your P&L, you can calculate EBITDA yourself. If your financials are messy, tangled with personal expenses, or you haven't reconciled in a while, spend $1,000-$2,000 on a CPA to do a quality-of-earnings review first. Buyers will find the problems either way. Better to find them yourself.