How Much Is a Business Worth Based on EBITDA? Formula, Multiples & Examples

Key Takeaways

• Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) equals net income plus taxes, interest, depreciation, and amortization, while adjusted EBITDA adds back documented excess owner pay and one-time costs.
• Business value equals adjusted EBITDA times a valuation multiple. That result is enterprise value, which differs from the cash a seller receives at closing. 
• The multiple usually outweighs add-backs: at $750,000 in adjusted EBITDA, moving from 3x to 4x adds $750,000. Private service businesses typically trade between 2x and 4x EBITDA, well below public-company multiples. 
• Core Growth Group, an operator-buyer of Texas HVAC and plumbing companies, helps owners understand where their adjusted EBITDA and multiple are likely to fall before a sale. 

Why Buyers Price on Earnings, Not Revenue

A business is worth its adjusted EBITDA multiplied by a valuation multiple, which for HVAC and plumbing companies around $5M in annual revenue usually falls between 2x and 4x. Most owners anchor to revenue or to a number another seller mentioned, but buyers price on earnings. 

The bigger dispute usually comes over adjustments. The gap between reported and adjusted EBITDA can move enterprise value by hundreds of thousands of dollars, even before debt and deal terms shrink the check at closing.

At Core Growth Group, we recalculate adjusted EBITDA the way a buyer does when evaluating HVAC and plumbing companies across the Texas Triangle. Founder Clint runs his own service company, so the review starts from an operator’s view of the books.

EBITDA Definition & Calculation

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures a business’s operating profit before financing choices, tax planning, and non-cash accounting charges. That lets buyers compare companies with different debt loads or equipment histories on a level playing field.

EBITDA Formula

EBITDA = Net Income + Taxes + Interest + Depreciation + Amortization

Adjusted EBITDA = EBITDA + Justified Adjustments

Taxes and interest are added back because they reflect tax and financing decisions, not how well the business runs. Depreciation spreads the cost of trucks, tools, and equipment over time, while amortization does the same for intangible assets such as a purchased customer list or software. Both are non-cash charges, so they are added back.

Calculating EBITDA From Your Financial Statements

1. Take net income from the income statement.
2. Add back income taxes from the income statement.
3. Add back net interest expense, meaning interest paid minus any interest earned, from the income statement.
4. Add back depreciation and amortization from the cash-flow statement.
5. Add justified adjustments from an owner add-back schedule to reach adjusted EBITDA.

For pass-through companies such as S corporations and LLCs, the tax line may be small, since profits are taxed on the owner’s personal return. Tax treatment varies, so confirm your company’s structure with a qualified CPA.

The Core Business Valuation Formula

Adjusted EBITDA × Multiple = Enterprise Value

Enterprise value is what a buyer pays for your entire business, which differs from the cash you take home at closing. For a private company, the multiple usually comes from what similar businesses sold for. Growth, owner reliance, and recurring revenue decide where a buyer lands within that range.

A business with $750,000 in adjusted EBITDA and a 3.0x multiple has an enterprise value of $2,250,000. Change either number and the result shifts immediately, which is why both sides spend so much time arguing over each one. 

Example: $750,000 in Adjusted EBITDA

A buyer values a Texas HVAC and plumbing company with $750,000 in adjusted EBITDA at $3 million, or 4x. The company carries $400,000 in equipment loans and holds $150,000 in cash.

1. Subtract debt: $3,000,000 − $400,000 = $2,600,000
2. Add cash: $2,600,000 + $150,000 = $2,750,000

The $2.75 million still excludes legal and CPA fees, earn-outs, and any holdback. Total transaction costs for lawyers, CPAs, and brokers typically run 10% to 20% of deal value, and sellers rarely receive the full price in cash at closing. Ask a qualified CPA or attorney to estimate your net proceeds. 

Why the Multiple Matters More Than Add-Backs

At $750,000 in adjusted EBITDA, moving from 3x to 4x adds $750,000. A $50,000 add-back at 4x adds only $200,000, so recurring revenue and a broad customer base usually raise the price more than another round of adjustments.

What Is the Difference Between Adjusted & Reported EBITDA?

Reported EBITDA comes from your financial statements. Adjusted EBITDA is the figure a buyer applies a multiple to after removing owner-specific costs a new owner wouldn’t carry. Buyers usually accept these add-backs when they are documented:

• Owner pay: Salary above what a hired general manager would earn.
• Personal expenses: Costs such as a family vehicle run through the business.
• One-time costs: A single lawsuit settlement or other expense unlikely to recur.

For example, a company reporting $600,000 in EBITDA might add back $80,000 in excess owner pay, $20,000 in personal vehicle costs, and $50,000 in one-time legal fees. That brings adjusted EBITDA to $750,000, and at 3x, enterprise value rises from $1.8 million to $2.25 million. A buyer’s accountant usually challenges undocumented add-backs first.

EBITDA Multiples: What’s Realistic for Your Business

The multiple applied to adjusted EBITDA depends on size, growth, and industry. HVAC and plumbing companies around $5 million in annual revenue typically trade between 2x and 4x EBITDA, with about 3x as a common baseline. Owners who anchor to public-company multiples often expect more than buyers will pay.

Public Company Multiples vs Private Company Multiples

Private companies almost always trade below public ones. Larger public companies usually have deeper management, more customers, stronger reporting, and far more potential buyers, all of which lower a buyer’s risk. 

A better benchmark is private sales of similar-sized companies in the same industry. A direct strategic buyer, rather than a broker or private equity firm, will typically price your business against those private sales. 

Why One Extra Turn of EBITDA Can Add Hundreds of Thousands

Small movements in the multiple produce large swings in enterprise value. On $750,000 in adjusted EBITDA, a 2.0x multiple implies $1,500,000 in enterprise value, a 3.0x multiple implies $2,250,000, and a 4.0x multiple implies $3,000,000.

Each additional turn of EBITDA in this example adds $750,000 in enterprise value. That is why owners spend so much effort building the characteristics that justify a higher multiple, like 20% to 30% year-over-year growth, recurring revenue, and reduced owner dependence, before going to market.

Defend Every Dollar of Your Valuation With Core Growth Group

Every dollar of adjusted EBITDA and every turn of the multiple adds up to real money at closing. Undocumented add-backs and expectations set by public-company multiples can cost an owner hundreds of thousands of dollars. They can also stall a deal once due diligence exposes the gap.

At Core Growth Group, we evaluate HVAC and plumbing companies across the Texas Triangle as an operator-buyer, starting with documented adjusted EBITDA and a multiple the numbers can support. Building the drivers of a stronger multiple typically takes 12 months of preparation. Whether you plan to grow first, prepare for a sale, or exit soon, start a conversation with Core Growth Group to see where your business stands today. 

Frequently Asked Questions (FAQs)

What’s a good EBITDA multiple for a small business?

HVAC and plumbing companies around $5M in annual revenue typically trade between 2x and 4x EBITDA, with about 3x as a common baseline. A strong growth story, such as 20% to 30% or more year-over-year growth, along with recurring service contracts, can support a multiple closer to 4x. 

How do you calculate EBITDA from financial statements?

Start with net income, then add back taxes, net interest expense, depreciation, and amortization. Take depreciation and amortization from the cash-flow statement, since it shows the actual non-cash charges for the period. Buyers then adjust that figure for owner pay, personal expenses, and one-time costs before applying a multiple.

Is EBITDA the same as cash flow?

No. EBITDA measures operating profit before interest, taxes, depreciation, and amortization, but it ignores spending on trucks and equipment and changes in working capital. A company can show strong EBITDA while cash stays tight, which is why buyers review both figures during due diligence.

Can two businesses with the same EBITDA sell for different prices?

Yes. Enterprise value depends on the multiple along with the earnings figure. At $750,000 in adjusted EBITDA, a 3x multiple implies $2.25 million and a 4x multiple implies $3 million. Growth, recurring revenue, owner reliance, and customer spread decide which multiple a buyer will pay.

How does Core Growth Group value an HVAC or plumbing business?

At Core Growth Group, valuation starts with adjusted EBITDA, not revenue, and reviews each add-back the way a buyer would. Founder Clint then looks at growth, crew depth, recurring revenue, and owner reliance to see where the company is likely to sit in the 2x to 4x range. 

 

*Disclaimer: This content is for informational purposes only and should not be considered business, financial, legal, or tax advice. Results vary based on market conditions and individual business circumstances. To learn more about scaling, preparing, or exiting your business, visit Core Growth Group.