Today we’re talking about an incredibly important topic: the dangers of mistaking EBITDA with Cash Flow.

It’s so tempting when you’re looking at a lot of these small businesses to buy and you see this metric called EBITDA and you think, “Hey, this is how much cash I’m going to have distributed at the end of the year to my investors.” But looks can be deceiving. 

So in this episode, we want to explain to you why this is so crucial when evaluating businesses, red flags to look out for, and how to resolve this potential conflict. We also give some examples on why exactly it is so important not to mistakes EBITDA with Cash Flow and how depreciation and amortization can get you into trouble.

Key Takeaways:

[:46] About today’s topic.

[1:36] What EBITDA is.

[2:21] An example of how EBITDA comes into play when buying a small business.

[4:47] Another example of why it is crucial to not mistake EBITDA with Cash Flow.

[6:49] Another way depreciation and amortization can get you into trouble.

[9:11] How to resolve this potential conflict: look at the Cash Flow statement!

[11:18] Bottom line: be very careful when you’re evaluating a small business and you’re just looking at the EBITDA.

[11:38] Particular businesses you want to be especially careful of.

[12:06] What are some red flags?

Mentioned in this Episode:

EBITDA

Cash Flow

CPA

PNL

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