EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) may be the key evaluation technique your business is missing. EBITDA, as the name suggests, takes your company’s earnings before taxes, fees and penalties are detracted.
Are you thinking of selling your home or small business? If so, it is important to gauge where your business stands financially. A good place to start evaluating your company’s financial standing, and potential value, is by determining your EBITDA.
While it sounds complicated, the equation itself is rather simple: subtract expenses from revenue (excluding interests and taxes) without depreciation and amortization (what you pay for assets). The EBITDA number that remains can show you where your business stands and where it can go in the coming years.
EBITDA number can be used as a rough estimate of free cash flow and comprehensive assessment of your company’s performance. Acquiring this EBITDA evaluation can provide a stable foundation for you and your company to build upon.
If you envision a time when you might want to sell your business, it is important to understand EBITDA and the numbers behind it prior to investor talks. While the equation is simple, it is important you are aware of your financial situation before the hard questions are asked. A misunderstanding of figures or miscalculation can reflect poorly upon you and your business. Investors and buyers will know these numbers well, so it is key to understand your EBITDA and what it means.
Whether you are interested in selling your small business or not, proper and thorough evaluation is a must. See how EBITDA can help you understand your business’ financial standing. Remember, you’ll never know until you try!