EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures a business's operating profitability by stripping out financing costs (interest), accounting conventions (depreciation and amortization), and tax jurisdiction differences. In Canadian M&A, EBITDA is typically used for businesses generating more than $500,000 in annual profit that operate with a professional management layer — meaning the business would continue generating similar profits if the current owner stepped back. Buyers and lenders use EBITDA because it approximates operating cash flow and is comparable across businesses with different capital structures and tax elections. Adjustments are almost always required: seller add-backs, owner compensation normalization, and one-time expenses must be stripped out to arrive at Adjusted EBITDA. A bank financing a business acquisition will underwrite the deal based on Adjusted EBITDA, not reported net income. EBITDA multiples for BC small businesses range from 2.5× to 6× depending on industry, size, growth, and customer concentration.
A Vancouver commercial cleaning company has reported EBITDA of $410,000 after normalizing for the owner's market-rate replacement salary. The company has three managers and runs without owner involvement. A buyer working with BDC financing gets a term sheet at 3.8× Adjusted EBITDA, giving an implied enterprise value of approximately $1.56 million.
Ali Sedighi uses this concept on every valuation engagement — cross-checking seller claims against third-party financial data and Canadian comparable sales before advising any buyer on price.