Why you shouldn't just take EBITDA at face value as an SME entrepreneur
March 2026 - Have you ever thought about selling your business? Sooner or later, you'll be asked: “What's your EBITDA?”. In practice, this financial indicator only tells part of the story.
The financial indicator EBITDA often comes up in conversations with buyers, banks, and advisors and is often presented as the benchmark for the value of your company. However, EBITDA is less objective than it seems. Without corrections, it can even give a false impression of how healthy and profitable your company really is.
EBITDA is not a pure figure
EBITDA stands for your company's profit before interest, taxes, and depreciation. The idea behind it is simple: people want to see what your company earns purely from its operations. But the figure in your financial statements is influenced by many past choices.
Think about how you remunerate yourself as a business owner, whether you rent or own the building, which costs you run through the company, or which tax optimizations you apply. All these elements mean that your EBITDA may look different from that of a similar company, even though you are essentially doing the same thing.
In other words, EBITDA seems objective, but in reality it is highly subjective.
What does “normalize” mean?
Normalizing means that your EBITDA is adjusted to provide a more realistic picture of your company's actual, sustainable profit. Exceptional or personal elements are filtered out, so to speak, leaving what a new owner can expect under normal circumstances.
The goal is not to make your financial figures look better, but to make them more accurate. This requires insight into your business and how you work as an entrepreneur. That is why advisors usually take the time to get to know your business well before they start making adjustments.
What items are often adjusted?
A classic example is real estate. Many entrepreneurs own their business premises and do not pay rent to their company. This seems positive for EBITDA, but a buyer will take rental costs into account. That is why a market-based “notional rent” is often added to make the result more realistic.
Personal expenses also play a role. Items such as cars, travel, or restaurant visits that are partly private reduce profits but have little to do with the actual operation of your business. These are often removed from the EBITDA.
In addition, there are one-off costs or revenues: a legal dispute, a restructuring, exceptional consulting fees, etc. They influence the result for one year, but say little about how your company normally performs.
Finally, there are transactions with yourself or with family businesses, such as management fees or rents that are not in line with market conditions. These are also adjusted to arrive at a “normal” situation.
Why this is important for sales or growth
Normalized EBITDA is used to determine the value of your company, to calculate a sale price, and sometimes also to make agreements about future performance. The figure is included in bids, negotiations, and contracts.
As an entrepreneur, it is therefore crucial to understand that the EBITDA in your accounting is not automatically the same as the EBITDA that a buyer will use. The better you understand this in advance, the fewer surprises you will encounter in a sales process.
