What is EBITDA?

By Adam Friend | Senior Vice President of Business Development

EBITDA is an acronym that stands for Earnings Before Interest, Taxes, Depreciation and Amortization, and is the most common metric for measuring the cash flow of a business for valuation purposes. Importantly, the EBITDA that will be the basis of the valuation will be what the buyer expects to be the ongoing cash flow post-sale, and that ultimately requires a detailed analysis. There are many factors that impact how a buyer views the EBITDA they are acquiring, including:

Do you get business from other court reporting firms that might not continue post-sale?
Do you get business relating to being a small or disadvantaged business?
Are there contracts that might not transfer with the sale?
Do you have sales reps that are at risk of not joining the new business?
Are there costs currently running through the business that wouldn’t continue post-sale?
What compensation would you require if you’re continuing with the business?
Is there non-recurring business associated with a large case or one-time work that is unlikely to continue in the future?
Are there differences in client or reporter pricing that would need to be harmonized that could have an impact on the financial performance of the business?

It’s important to understand that different buyers may have different views of what your EBITDA is, and that depending on their business approach, cost structure, geographic footprint, and resources, EBITDA could vary significantly from their point of view.