EBITDA For Startups
As you grow your startup, you'll likely run into "EBITDA" — or Earnings Before Interest, Taxes, Depreciation and Amortization. While your investors may want you to report EBITDA, you’ll likely first encounter it when you get your first 409A valuation. Though the acronym seems deceptively self-explanatory, EBITDA is a key concept to understanding one of the ways investors look at your company.
What exactly is EBITDA?
While not required by the SEC or contained with the Generally Accepted Accounting Principles (GAAP), EBITDA is increasingly common as a way to phase out the noise that can cloud a company's accounting statements: interest payments, tax payments (or credits), nonstandard accounting and financing methods. It's certainly not the best way to examine a company's overall profitability, but it's useful when comparing many companies in a similar space. Here's an example:
How do I calculate my EBITDA?
Simply take your net income and add back in any interest paid, taxes paid, depreciation and amortization. But beware! If you've received interest or tax credits, these must be subtracted from your net income.
It's important to have good accounting to calculate EBITDA accurately. Accounting software like Paperclip makes putting together these necessary figures a cinch. Learn more about using our potent software and helpful accounting associates to see your business from every angle.
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