Watch this short video before reading further.

In a nutshell, EBITDA is a measure of a business’s true earning power or cash flow. Like Paulie, says, “the true picture of a company’s profitability.” 

Another common measure of cash flow is Sellers Discretionary Earnings or SDE. Which measure to use depends on how much cash flow your business generates.

This is the first step when valuing a business, calculating the cash flow, and identifying which measure best suits your exit path.

Knowing the appropriate measure of cash flow is key to identifying a multiple, likely buyer and appropriate exit strategy for your business.

If you’re thinking about exiting in the next few years but are unsure of the true earning power of your business, we’re ready to assist.

If you’d like to learn more about exit strategy, we created a video series for you called 24 Rules to a Successful Business Exit.

You can check them out here.

These short videos are the ultimate quick start guide of the exit process.