EBITDA
What it means
EBITDA strips out financing and accounting items, interest, tax, depreciation and amortisation, to show how much cash-like profit a business generates from its core operations. Because it ignores how a business is financed and how its assets are depreciated, it lets buyers compare outlets on a like-for-like basis.
In franchise resales, EBITDA is the usual starting point for a valuation. A buyer applies a multiple (for example, two to four times EBITDA) to arrive at an enterprise value, with the multiple reflecting the brand's strength, the outlet's location, lease terms, and how much the profit depends on the current owner.
EBITDA usually needs adjusting before it is useful. A normalised or adjusted EBITDA adds back one-off costs and above-market owner salaries, and removes any personal expenses run through the business, to show what a new owner could realistically earn. Royalties and marketing levies remain as genuine operating costs and are not added back.
In practice
When buying a franchise resale, do not accept a headline EBITDA at face value. Ask for the adjustments behind it, check them against the financial statements and BAS, and confirm that franchise fees, rent and a market-rate wage for the owner's role are all properly reflected.
EBITDA is a profitability yardstick, not a cash-flow guarantee. It excludes loan repayments, tax, and the capital expenditure needed to refit or maintain the outlet, so a business can show healthy EBITDA yet still be tight on cash. Always read it alongside the unit economics and any looming refurbishment costs.
A real example
A franchisee sells a bakery outlet reporting $150,000 EBITDA after adding back the owner's inflated $90,000 salary. A buyer normalises this by deducting a market wage of $70,000 for a replacement manager, cutting adjusted EBITDA to about $130,000. At a 2.5x multiple, that shifts the indicative price from roughly $375,000 to $325,000, a $50,000 difference driven entirely by one adjustment.
EBITDA — FAQs
Is EBITDA the same as profit?
No. EBITDA is earnings before interest, tax, depreciation and amortisation. Net profit is lower because it subtracts those items, so EBITDA overstates the cash you actually keep.
Are royalties added back to EBITDA?
No. Royalties and marketing levies are ongoing operating costs of running the franchise, so they stay in the calculation. Only genuine one-offs and non-market owner costs are adjusted.
What EBITDA multiple is normal for a franchise?
It varies by system and outlet, but small franchise resales often trade around two to four times adjusted EBITDA, with stronger brands and locations commanding higher multiples.
Why do buyers prefer EBITDA?
It lets them compare outlets independently of financing and depreciation choices, giving a cleaner view of underlying operating performance before applying their own funding and tax position.
See the full franchise glossary, the Fee Index or our buyer guides.