If you spend much time at all reading about business values, you’ll quickly run across the terms “EBITDA” and “cash flow.” In many cases, they seem to be used interchangeably. But can they really be used in the same ways?
In this post, we’ll help you better understand EBITDA vs cash flow. Hopefully, the next time you come across either term, they won’t be confusing.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) has become the standard value metric when it comes time to sell a business.
It is what both buyers and sellers look to in order to determine the value of the company in question. While many factors come into play when a business changes owners, nothing gives everyone involved a better snapshot of that company’s health and value than its EBITDA.
Generally speaking, the higher the EBITDA, the higher the price. Valuation companies like ours apply industry-standard multipliers to the EBITDA of the business being sold to arrive at its current market worth. That’s a simplified explanation, however, and things are rarely that clear cut.
A common phrase you hear in business is “you have to spend money to make money.”
Unfortunately, too many small business owners spend more money than they actually have…all in the name of getting their company off the ground or taking advantage of the next perfect opportunity. They hope that the money they bring in tomorrow will cover the money they’re spending today.
The end result of that kind of business strategy is a lot of debt.
One company owing money to another isn’t a cardinal sin of doing business. It happens all the time. For this post, we want to focus on how much debt is reasonable as a percentage of a company’s overall EBITDA (a common measure of cash flow derived as earnings before depreciation and taxes, depreciation, and amortization).
What if you had a quick way to measure how your company is performing from year to year?
An often-used phrase in business is that you can only “expect what you inspect.” If you aren’t regularly checking to see how well your company is doing, you are missing out on valuable information and quite possibly setting yourself up for trouble.
By using your business value as a benchmark, you can quickly check the pulse of your company and tell if it is generally healthy and improving year by year or has problems that need to be addressed.
Southard Financial is excited to announce an addition to our lineup of valuation experts that will give our clients yet another powerful partner when it comes to establishing accurate and professional valuations nationwide. Please welcome Ed Usalis to the Southard team!
“We know that our clients expect the most reliable valuations from us. And over the past 30 years we have set out to provide the absolute best experience for our clients,” says Mark Orndorff. “So when we met Ed, we knew he would be a perfect compliment to our team.”
David A. Harris and Mark A. Orndorff spoke at the 2019 Annual Fall Conference of the New South Chapter of The ESOP Association held in Orlando, Florida on October 16-17. They gave a presentation titled “Can Employees Really Impact Company Value?”
David A. Harris and Matthew L. Jakes spoke at the 2019 Spring Workshop of the New South Chapter of The ESOP Association held in Atlanta, Georgia in February, 2019 on the topic of “Valuation Appraisal Checklist – 10 Things Your ESOP Appraiser Should be Doing”
David A. Harris spoke at The Fall ESOP Forum of the NCEO (National Center for Employee Ownership) held in Albuquerque, New Mexico in October, 2018 on the topic, “Communicating Valuation: Tools, Tips, and Examples”.
David A. Harris spoke at the 2018 Annual Fall Conference of the New South Chapter of The ESOP Association held in Birmingham, Alabama in September, 2018. He led a workshop called “The People’s Roundtable Interactive Workshop – A series of ‘Build to Last’ activities that focus on developing successful communication and team building programs for employee owners of all generations.” Speakers included Dolores Lawrence, Blue Ridge ESOP Associates; Lindsay Baublitz, SCandH Capital; David Harris, Southard Financial LLC
Mark A. Orndorff spoke at the ESOP Nuts and Bolts Seminar of the NCEO (National Center for Employee Ownership) held in Indianapolis, Indiana in August, 2018 on the topic of “What’s Your Company Worth? – ESOP Valuation.”
Mark A. Orndorff spoke at the American Booksellers Association Winter Institute 2018 held in Memphis, TN in January, 2018 on the topic of Succession Planning titled “What is Your ‘End Goal’?”
