What Is EBITDA and Does It Matter When Selling My Small Business?

If you’ve spent any time researching how businesses are valued, you’ve probably come across the term EBITDA. It’s used constantly in the world of mergers and acquisitions — but for most small business owners in St. Augustine, it’s not actually the most relevant metric. Here’s what you need to know.

What Does EBITDA Stand For?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a measure of a company’s core operating profitability — stripping out financing costs, tax strategies, and accounting adjustments to show what the business actually earns from its operations.

In plain English: take your net income, add back your interest expense, tax expense, depreciation, and amortization — and you get EBITDA.

Why Is EBITDA Used in Business Valuations?

EBITDA is commonly used because it allows buyers and investors to compare businesses across different industries, tax situations, and capital structures. It answers the question: “How much does this business earn from its core operations, independent of how it’s financed or taxed?”

Middle-market businesses (roughly $1M+ in EBITDA) are often valued as a multiple of EBITDA — for example, 4x to 8x EBITDA depending on the industry, size, and growth profile.

Does EBITDA Apply to Small Businesses?

Here’s where it gets important for most St. Augustine business owners: most small businesses are not valued on EBITDA. They’re valued on Seller’s Discretionary Earnings (SDE) instead.

SDE is similar to EBITDA but adds back the owner’s salary and personal benefits — because in a small business, the new owner is replacing the current owner and will pay themselves from those earnings. This makes SDE a more accurate picture of what the business is worth to an owner-operator.

As a general rule:

• Businesses with under $1M in owner earnings: typically valued on SDE multiples
• Businesses with $1M+ in EBITDA: often valued on EBITDA multiples and attract institutional buyers

What Are Typical EBITDA and SDE Multiples in Florida?

Multiples vary significantly by industry, size, growth rate, and market conditions. As general benchmarks:

• Small businesses (SDE-based): typically 2x to 4x SDE
• Lower middle market (EBITDA-based): typically 4x to 7x EBITDA
• High-demand industries (tech-enabled, recurring revenue, healthcare): can exceed 8x EBITDA

How Can I Increase My EBITDA Before Selling?

The formula is straightforward: grow revenue, cut unnecessary costs, and reduce owner dependence. Specifically:

• Eliminate discretionary expenses that won’t continue under new ownership
• Improve gross margins through pricing or supplier renegotiation
• Build recurring revenue streams that improve earnings predictability
• Reduce reliance on you personally so earnings are sustainable post-sale

Even a modest improvement in earnings — especially if it holds for 12+ months — can meaningfully increase your sale price when multiplied.

Getting the Right Valuation for Your Business

Whether your business is valued on EBITDA, SDE, or another method entirely, what matters is understanding which metric applies to your situation and how buyers in your industry think about it. A professional valuation takes all of this into account.

If you own a business in St. Augustine or Northeast Florida and want to understand what your business is worth — and how it’s likely to be valued — I offer confidential consultations. Let’s look at your numbers together.

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Related Reading

• Should I Use a Business Broker to Sell My Business in St. Augustine?
• Should I Use a Business Broker to Sell My St. Augustine Business?
• How to Increase the Value of Your Business Before You Sell

• Category: Selling a Business