Ben's blog for business owners
22nd March 2017
In its long form EBITDA stands for Earnings Before Interest, Taxation, Depreciation and Amortisation.
A bit of a mouthful, but the point to note is it is an adjusted net profit figure that business valuers use to assess the value of the goodwill element of your business.
Your business goodwill is the non tangible element of your business. It includes everything bar your physical fixtures and fittings which are valued separately. So your goodwill includes how well you retain and grow your customer base and your reputation in the local community.
To value your goodwill, valuers extract certain elements from your net profit figure such as the interest you pay on the loans you have and any depreciation applied to your long term assets. This is because these factors are specific to you and do not necessarily apply to an incoming business owner.
A multiple of this adjusted net profit figure, or EBITDA, is then used to value your business.
You may not wish to sell your business in the short or even medium term. But a proactive accountant will calculate your EBITDA for you on a regular basis and support you in improving it over time, in order to improve the value of your business when you do come to sell.
To discuss your EBITDA further, please call us on 01249 712074. We're here to help.
Ben Hyde, Client Account Manager