EBITDA Unpacked: A Back-to-Basics Guide for SME Valuations
- Quinten Taljaard
- Sep 16
- 2 min read
Updated: Sep 18
In the world of small and medium-sized enterprise transactions, few metrics are as frequently referenced or as widely misunderstood as EBITDA. Standing for Earnings Before Interest, Taxes, Depreciation, and Amortisation, EBITDA serves as a shorthand for a company’s operating performance, stripping out variables that might obscure its core earnings power. But why does this metric carry such weight in the valuation of SMEs?
At Logan Gray International, we believe that demystifying EBITDA is not merely an academic exercise; it is a vital step in empowering business owners to understand how buyers view their companies—and how they can take control of that narrative.
Why EBITDA Matters
First and foremost, EBITDA offers a lens through which to view a business’s underlying profitability without the “noise” of capital structure and tax regimes. It allows potential buyers to compare companies on a more apples-to-apples basis. In the SME arena, where every percentage point of margin can be a deal-maker or breaker, EBITDA is a kind of common currency.
While some may argue that EBITDA can over-simplify or mask certain financial challenges, it remains a key measure for comparing the underlying performance of businesses. That is why we always encourage clients to view it as one important tool among several in their valuation toolkit.
Understanding Valuation Multiples in Context
When it comes to valuation, EBITDA multiples are often the yardstick. Rather than pinning down exact numbers, it is important to recognise that multiples vary widely based on a company’s specific attributes. A well-structured business with strong recurring revenue and professional operations will naturally attract a more favourable multiple than one that is less mature.
Strategic Succession Planning
At Logan Gray, we do not believe in simply accepting your fate in the market. Through our pre-sale optimisation services, we put you firmly in the driver’s seat. By starting early and working with us to optimise your financials, team structures, systems, and reporting, you can actively shape the narrative and enhance the multiple your business might command. In other words, you gain the benefit of our seasoned team who have navigated these waters many times, offering a fresh perspective and actionable insights.
Conclusion: Keeping It Clear and Insightful
At Logan Gray, our role is to guide you through these nuances, ensuring that you not only understand EBITDA but also appreciate how multiples reflect the market’s view of your business’s readiness and resilience. By taking proactive steps now, you can maximise your position and achieve a more favourable outcome when the time is right.
We invite you to get in touch with our team to explore how we can support your journey. Whether you’re planning for a sale in the near future or laying the groundwork for years to come, we’re here to help you navigate the process with confidence. Reach out today, and let’s take the next step together.
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