Consulting & Advisory

You have decided to pursue a sale of your business, and the question of timing weighs heavily: when should employees know? Ask ten different experts, and you’ll get ten different responses. This is why so many founders struggle with this decision. We’ve seen owners make an announcement before even going to market, and lose top employees, and others treat it as a secret, making it harder to get the deal across the finish line without key management involved.

On one side, honest communication with the team helps preserve the trust that has grown over the years of working together. On the other, sharing too soon can create fear, uncertainty, and distractions. The right approach depends on timing, messaging, and the expectations of potential buyers.

This article outlines the pros and cons of telling your employees about the sale early and provides communication strategies to ease the process.

The Risk Of Telling Too Early

Not all employees react the same way to news of a sale. Senior executives often recognize that most businesses are built with an eventual exit in mind. In fact, many CFOs, COOs, and division leaders expect that outcome and may already be preparing for what it means in their area of responsibility. With the right framing, these leaders can become valuable allies in preparing data, answering diligence questions, and presenting the company to buyers.

By contrast, line employees typically don’t have the same visibility into strategy. For them, the announcement of an “active sale process” often lands as a shock. Without context, it can trigger fears of layoffs, changes in leadership, or cultural upheaval. That anxiety can spread quickly through the ranks, impacting morale, performance, and even customer service at the very moment when stability matters most.

It’s also important to distinguish between telling your team that you’re “building the business for an eventual sale” versus disclosing that you are “currently in a sale process.” The former can be framed as part of a growth strategy, aligning everyone around professionalizing operations, building recurring revenue, or expanding margins. The latter is different: once you confirm you’re “in-market”, employees assume change is imminent, and competitors or recruiters may use that uncertainty to their advantage.

Potential Impact On Operations

How and when you disclose a sale process can directly affect day-to-day performance. For senior management, advance notice can be productive: your CFO, controller, and head of operations often need to be involved early to assemble financials, contracts, and diligence materials. Without them, the process slows to a crawl.

For the broader team, premature disclosure usually creates distraction. Line employees don’t see the nuances of a potential transaction. They hear “sale” and worry about job security. That anxiety can lead to lower focus, rising turnover, or even missed deadlines with customers. In one business that we advised, early disclosure caused some middle managers to assume layoffs were imminent, and service quality levels slipped at exactly the wrong time–as buyers were evaluating customer satisfaction.

Buyers pay close attention to performance during diligence. A dip in revenue, margins, or customer retention can raise red flags, even if the cause is temporary uncertainty. When the rumor mill affects operations mid-process, buyers may use it as leverage to lower their offer or modify deal terms.

When Buyers Expect Employee Involvement

A point comes where involving certain employees is no longer optional. In the early stages, buyers usually expect to deal solely with the owner or leadership team. 

However, once a letter of intent (LOI) is in place and the process moves into exclusivity, they often expect to meet key management.

Building Trust With Buyers

At this stage, buyers want to understand the individuals who will continue to run the business post-close. These conversations help buyers evaluate the strength of the management team and gauge their willingness to stay and contribute to the company’s future success.

Discussing Post-Transaction Roles

When buyers plan to retain leadership, they typically want to discuss roles, responsibilities, and compensation directly with the individuals themselves. Having prepared employees facilitates more productive discussions. 

Strategies For Communicating The News

The tone and clarity of your message are as important as the timing when sharing significant updates. Thoughtful communication builds confidence and cuts down on any unnecessary anxiety.

Developing The Message

Be clear, honest, and direct: outline the details of the sale, the reasons behind it, and how it could impact the team moving forward. You should avoid speculation or promises you cannot support. Employees will appreciate candor, even if every detail is not yet available.

Preparing For Questions

Employees will have questions about job security, roles, and the company’s future. Anticipating these concerns and preparing thoughtful responses shows respect for your team and helps maintain trust during a period of change.

Keeping Communication Consistent

Consistent messaging prevents rumors from filling gaps. Regular updates, even brief ones, demonstrate that leadership is in control of the process and values keeping the team informed.

Working Together

Messaging to the team should be done in partnership with the buyer. If employees hear the same message from you as they do from them, they are less likely to question it. Collaborate on a “go forward” story with your buyer that genuinely shows your team why you’re excited about the deal.

Balancing Transparency And Stability

Sharing the right amount of information at the right time keeps operations steady while supporting the sale process. Too early and broad, and you risk disruption; too late and narrow, and you risk losing trust and undermining diligence.

A well-considered communication plan allows you to maintain focus on the transaction while preserving morale and productivity. For many owners, guidance from experienced advisors helps identify the ideal moment and strategy for these conversations.

Moving Forward In Your Sale With Complete Confidence

Deciding when and how to tell your employees about an upcoming sale is never simple. The right approach balances transparency with stability, protecting both your team and the value of your business throughout the transaction process. With thoughtful planning and the right guidance, you can communicate effectively while keeping operations on track and maintaining buyer confidence.

At Roadmap Advisors, we know that it’s complicated to prepare for and manage a sale. Our team combines deep transaction expertise with a practical, empathetic approach to advising business owners. We take the time to understand your goals, anticipate challenges, and help you manage each step of the process, including sensitive conversations with your team.

If you’re currently considering a sale and want trusted guidance from advisors who have worked with companies like yours, we invite you to schedule a consultation with us. Together, we can position your business for a strong outcome while supporting the people who helped build it.

After twenty years of building his company, one owner put it simply in our first planning session: “If this sale means my people lose their jobs, I’m walking away.” His priority was clear. The future of his team mattered more to him than the purchase price.

Many owners share that sentiment, and it’s not hard to see why. Data shows that 47% of key employees leave within one year, and 75% depart within three years after a merger or acquisition. One of the most pressing questions during a business sale is how the incoming ownership will shape the future of the people who have helped build and sustain the company.

Choosing The Right Buyer

Selecting a buyer whose vision includes the existing team is the most effective way to protect employee jobs. The earliest stages of the sales process are an opportunity to filter out buyers whose growth plans rely heavily on cutting staff or consolidating roles. 

Identifying the true intentions of all parties at the very start can greatly minimize the likelihood of disruptive or costly surprises emerging further along in the process. During management meetings, sellers meet directly with potential acquirers, ask about their approach to retention, and even speak with leaders from the buyer’s prior investments.

A buyer’s track record often reveals their stance on culture, people, and operational stability. Paying close attention to the language they use when discussing team integration, day-to-day management, and employee development can offer valuable insight into how they might handle the transition. 

When sellers look at cultural fit alongside price, they give their employees a much better chance of landing in a stable, supportive environment after the deal.

Structuring Employee Retention Into The Deal

The transaction itself can be designed to encourage workforce retention. Elements such as stay bonuses, employment agreements, and performance-linked earn-outs can give employees a strong reason to remain through the transition and beyond. These arrangements also provide reassurance to buyers that the team will continue to drive performance after closing.

Equity participation can be another powerful tool. Negotiating an employee ownership plan at closing allows valued team members to share in the company’s future growth. When an owner steps away, this type of arrangement can create a sense of shared investment and continuity that benefits both the new leadership and the workforce.

Introducing these protections early in negotiations positions them as part of the overall deal framework rather than as last-minute concessions. Requests made late in the process can be harder to secure, while early integration into discussions demonstrates the seller’s commitment to the team as a core element of the transaction. 

Even softer protections, such as commitments on employee communication or maintaining existing reporting structures for a period after closing, can influence how the buyer approaches integration.

Communicating With Purpose

Transparency plays an important role in maintaining morale during a sale. Announcing a transaction too soon can create unnecessary anxiety, but waiting until the deal is nearly finalized can limit the opportunity for employees to prepare. 

Bringing select members of the leadership team into the process before due diligence can help maintain operational stability and create advocates for the transition.

Thoughtful communication with employees also builds trust, which can carry into the integration period after the deal closes. Clear messaging about what is changing and what will remain the same reduces uncertainty and supports retention. 

Buyers who inherit a well-informed, engaged team will find it easier to maintain performance through the transition.

Using The Due Diligence Period Wisely

Due diligence offers sellers the chance to observe how prospective buyers interact with their team. A respectful, organized approach during site visits or management presentations can be a positive indicator of how the buyer values people. 

Sellers should use this time to assess whether the buyer’s integration plan is consistent with their own expectations for employee retention.

It is also possible during this stage to negotiate additional terms that protect the workforce. For example, a requirement for the buyer to maintain certain departments, continue existing benefits for a defined period, or honor accrued vacation policies can all be addressed before final agreements are signed. Sometimes overlooked, these details can significantly impact employee stability after the sale.

Balancing Financial Outcomes With Legacy

Every sale has significant financial implications, but for many owners, the legacy of the business includes the livelihoods of the people who helped build it. 

Accepting a slightly lower valuation from a buyer with a strong record of employee care may be worth more in the long term than achieving the highest possible price from a buyer focused solely on cost reductions.

Knowing all of the potential trade-offs early on helps frame negotiations in a way that aligns with both the seller’s personal goals and the buyer’s operational plans. When priorities are well defined, comparing competing proposals becomes a more straightforward process, grounded in informed and deliberate decision-making.

Preparing The Team For The Future

Once the sale is complete, the real work of integration begins. Sellers who have invested in preparing their employees for change often see smoother handovers. 

The preparation involved might include leadership training for managers, cross-training between departments, or creating transition documents that help new ownership quickly understand processes and relationships.

In most cases, arranging a phased transition where the outgoing owner remains in a limited capacity for a period can give employees added confidence. Having a continued presence can help address concerns, answer questions, and bridge the gap between old and new leadership.

Leaving On The Strongest Terms

Choosing a buyer who values the team, building retention into the deal, communicating openly, and preparing the workforce for change all contribute to a smoother post-sale transition. Sellers who make these priorities part of their strategy can exit with confidence, knowing both the business and its people are positioned for continued success.

If you’re preparing for a sale and want a partner who can help you achieve a successful transaction while protecting the team that helped you build your business, book a consultation with Roadmap Advisors today to discuss how our M&A consulting services can support your goals.

Owners in a sale process often fixate on the offer with the largest number attached. While valuation is important, studies repeatedly show that many deals that looked promising at closing never delivered the outcomes owners hoped for. 

Post-sale disappointments often stem from choosing a buyer whose priorities or practices did not align with the seller’s vision for the business. This article will outline how to evaluate “fit” alongside price for sellers who care about the wellbeing of their team, culture, and legacy.

Defining Buyer Fit Beyond The Dollar Amount

Buyer fit goes beyond a signed term sheet. In the world of mergers and acquisitions, this concept reflects how well the seller’s long-term goals align with the buyer’s broader business strategy.

True compatibility goes beyond the deal structure, encompassing shared values, similar operating philosophies, a smooth leadership transition, and a clear approach to employee treatment after the deal. It also considers whether the visions for the company’s future are aligned for the buyer and seller. 

Transactions that measure these dimensions early tend to integrate faster, retain essential talent, and generate stronger performance long after the deal is done.

Culture, Continuity, & The Owner’s Legacy

For many owners, a business is more than a financial asset; it represents decades of effort, relationships, and community impact. Sellers frequently ask whether the buyer will retain key employees, preserve customer relationships, and invest in the brand rather than dismantle it.

Deals that actively protect workplace culture and continuity often deliver smoother transitions because employees remain motivated and customers stay loyal. Buyers who address these questions early, with clear commitments and integration plans, send a strong signal that they respect what the seller has built.

Strategic vs. Financial Buyers

Who the buyer is matters just as much as the terms of the deal. Strategic acquirers, typically operating companies, look for strong synergies with their existing markets, products, and capabilities. They often hold businesses indefinitely and may retain leadership to preserve continuity. 

Financial sponsors, such as private equity firms, focus on generating returns within a defined investment period. Their approach may involve operational changes, cost initiatives, and eventual resale. 

Neither model is inherently better, but sellers need to understand the buyer’s objectives and how those will shape the company’s future.

A strategic buyer might invest heavily in growth but alter the culture, while a financial sponsor might protect culture but introduce tighter financial discipline. Evaluating these differences helps owners choose a path aligned with their priorities.

Why The Top Bid May Not Be The Right Choice

The biggest number on the table often comes with strings attached. A buyer might propose an earnout that looks lucrative but is tied to performance metrics you won’t control after the sale. Another bidder might stretch to make an offer but still need to raise debt or equity, adding financing risk. In regulated industries, the wrong buyer could trigger a lengthy approval process that stalls or kills the deal.

We’ve seen deals where the “top” offer fell apart because half the purchase price was contingent on unrealistic growth, or because the buyer’s financing never materialized. Meanwhile, a lower all-cash bid from a strategic acquirer closed quickly and delivered certainty.

The lesson is simple: sellers shouldn’t just ask “Who’s offering the most?” but “Who’s offering terms that will actually deliver the value I care about?” In many cases, the safer bid ends up being the smarter bid.

Evaluating Buyer Behavior During The Process

The negotiation and diligence phases reveal much about how a buyer will act after the deal is completed. Experienced advisors know and watch for signs that reveal buyers’ true motivations and intentions. 

In a recent process, we received twelve indications of interest. Most clustered tightly around $17 million. These bidders invested real effort: multiple calls, detailed data room reviews, and numerous information requests. One group, however, submitted a wide range of $15 million to $28 million.

The seller was intrigued and considered advancing them to management meetings. But this was a classic case of “throwing spaghetti at the wall.” The bidder hadn’t asked questions, scheduled calls, or done any follow-up. Their offer looked big on paper, but lacked substance.

Buyers who respect timelines, make prompt data requests, and involve operational leaders in discussions tend to be serious about making the transition work. They ask thoughtful questions that show they want to understand the business, not just acquire it. 

In contrast, repeated delays, vague requests, or dismissive treatment of employees can indicate future friction. Assessing behavior during this stage allows sellers to adjust their expectations and weigh potential offers more accurately.

Choose A Partner, Not Just A Payout

Beyond capturing financial value, selling a business means choosing a steward who will nurture what has been built. The best outcomes occur when both parties leave the table satisfied and the business is set up for long-term success. 

Owners benefit from working with advisors who understand how to balance financial and non-financial criteria, apply a structured approach to evaluating fit, and widen the pool of potential buyers. 

Roadmap Advisors takes this approach by partnering with business owners to identify buyers whose strategies, culture, and integration plans align with the seller’s vision. Our experience in sell-side processes, due diligence, and valuation allows clients to weigh offers holistically, protecting both financial outcomes and what matters most to them.

If you’re currently considering a sale or want to learn more about your options, contact our seasoned team and schedule a consultation today. Let’s have a conversation about what the right outcome looks like for you and your organization.

Last week, I had two back-to-back calls with business owners.

The first CEO, we’ll call him Jason, joined the call to discuss one final detail in our non-disclosure agreement (NDA). We were on version 10 of revisions, with each back-and-forth reviewed by his attorney. The last open item to nail down was the venue clause, where we agreed that if any dispute arose from our confidentiality, we would resolve them in Wyoming (a location that would be equally inconvenient for both of us).

He hadn’t told a single member of his team about his plans, not even his assistant, CFO, or his son that worked in the business.

My next call with a seller, who we will call Jennifer, couldn’t have been more different. “I don’t believe in NDAs,” she said. “Everyone shares this stuff around anyway; I don’t care. My whole company knows we’re building this to sell.”

Both companies are founder-owned. Both are already worth over $50 million, and both owners have a vision of an eventual $500 million-plus exit. Yet, their views on confidentiality are diametrically opposed.

Why Confidentiality Matters

Jason has legitimate reasons to be worried about confidentiality. If news of a possible sale surfaces prematurely, it can create ripple effects that impact the entire organization. Employees may worry about job security and start polishing up their resumes. Customers can begin to question the stability of the relationship, while competitors may jump at the opportunity to lure business away.

In all of these ways, the protection of information flow can affect the most impactful lever in a sale process: the consistent growth and profitability of your business.

Can Confidentiality Go Too Far?

Jennifer isn’t wrong either. Time kills deals, and NDA negotiations add a lot of time to the process. Professional buyers evaluate a lot of deals. Give them pages of redlines, and they may just throw your opportunity in the bin. 

Buyers also pay up for having a deep management bench that works together with cohesion. Keeping the most key players in the dark about a sale process adds significant risk to a potential ownership transition.

Role Of NDAs

It is absolutely “market standard” to have buyers sign an NDA before receiving the Confidential Information Memorandum (CIM) in a sale. However, we encourage sellers to make their confidentiality agreements “buyer friendly” to encourage a fast turnaround, while operating under the assumption that their information might get leaked. 

How can a business owner get comfortable with the fact that their info might get out? By not sharing in the CIM, anything that could cause damage to the business. If someone wants to spread rumors about you selling the business, they can do that any time they want, even if you’re not selling. 

If the identity or nature of your relationship with your key people, key customers, or key suppliers are part of your “secret sauce”, simply don’t name them in your materials. The purpose of a sale process is to evaluate potential investors for their level interest, their willingness to pay, and their fit with your organization. You can do all of that without giving them your employee roster or a detailed run on sales by customer.

The NDA is there to protect you in the case of blatant abuse of confidentiality that directly hurts your business. It will not protect you from rumor-mongers.

Who to Bring Into the “Inner Circle”

One of the most important decisions in a sale process is deciding who inside your company should be brought into the loop, and when. Telling too few people will slow you down, while telling too many can create anxiety or risk leaks. Start with the people who are essential to the preparation process, such as your CFO, controller, head of operations, or sales leader. Whether your company has these titles formalized or not, the group presenting the business to buyers should be your equivalent of “the C suite”.

Silence or Open Book?

So, what’s the right approach? The silent Jason, or the open-book Jennifer?

As you might guess, we recommend an approach that blends the two. 

	Silence	Open Book
Benefits	§ Reduces the risk of rumors reaching competitors, customers, or employees § Preserves focus within the company while exploring a sale § Provides time to evaluate interest without external pressure	§ Encourages collaboration and speeds up preparation § Gives buyers access to key team members earlier in the process § Reduces thechance of disruption later, since employees are already informed
Drawbacks	§ Can delay the process or frustrate potential buyers § Limits internal involvement, making it harder to prepare information or get support § May signal to buyers that the seller is overly cautious or uncertain	§ Increases the risk of leaks to the market or industry peers § May cause uncertainty or anxiety among staff if the deal doesn’t move forward § Could weaken negotiating leverage if buyers perceive the process as unstructured

Ask The Right Questions

Instead of defaulting to a one-size-fits-all playbook, owners should ask themselves a few key questions:

• Is there any information in my CIM that, if it was leaked, would hurt the business?
• Who on my team really needs to know right now, and who can wait?
• What kind of buyers am I targeting, and how will they expect the process to be run?
• How broad to I want my auction process to be?

The Best Approach Is a Thoughtful One

At Roadmap Advisors, we’ve supported business owners across the spectrum: from carefully managed and hyper confidential negotiations to broad and open processes. The key is not which end of the spectrum you choose. The key is choosing with intention. If you are considering your next steps and want to understand how confidentiality can be actively managed, contact one of our m&a advisors to get started today. Our team is ready to listen, share perspective, and help you move forward when the timing is right.

A skilled M&A advisor plays a critical role in safeguarding sensitive details about your business throughout the sale process. From the earliest conversations to the final closing, protecting confidentiality is essential to preserving your company’s value, reputation, and operational stability. 

At Roadmap Advisors, we take a proactive approach to minimizing risks by controlling how, when, and with whom information is shared. Below are just a few of the key practices we encourage sellers to adopt to help ensure that their transaction proceeds smoothly and securely.

The NDA

Pre-empt The PE Markup

Private equity firms predictably push back on the same few terms in all NDAs, most of them inconsequential. They typically require the right to retain a single copy of confidential information in backup format for regulatory compliance. They also need the ability to share deal information with lenders, lawyers, QoE firms, LPs, etc. (definition of “Representatives”). The definition of Confidential Information should exclude anything already shared or known to the buyer from other sources. There are about a dozen more of these, reach out to us for the latest list.

Pick a Neutral Venue

Unless your business is based in Delaware or New York, expect buyers to ask for a more neutral venue. Choosing one of these states has the benefit of extensive case law and efficient court systems, which can benefit both sides.

Update Your NDA For This Century

Notices should be accepted in email format. “Return” language should be replaced with deletion requirements, as most information is digital anyway.

Limit Non-Solicitation To When It Matters

Solicitation of employees is more of an issue with strategic competitors than with PE firms who don’t operate in your industry. Solicitation of rank-and-file employees outside of management is less of a risk than solicitation of leadership. Expect pushback on non-solicitation clauses, and have a clear understanding of what you’re willing to accept.

The Information Sharing

Limit Your Information Sharing

It is perfectly acceptable to have separate NDAs for PE and competitors. It is also fine to prepare two different CIMs: one for financial buyers, and one for competitors. You don’t have to share everything with everyone up front. Work with your advisor to create stages of information sharing and gauge who is serious before disclosing sensitive details.

Use Staged Information Releases

Release only the information necessary for each phase of the process. Start with a high-level “teaser,” then provide a more detailed CIM once serious intent and fit are confirmed by your investment banker and the counterparty has signed an NDA. Hold back sensitive customer names, pricing details, or proprietary processes until later in diligence when trust is higher and the deal is more likely to close.

Keep Your Process Tight

Work with your investment banker to prepare all materials in advance and keep your process on a defined, short timeline. A company that is “in market” for 12 months is more likely to suffer from information leaks. An experienced M&A advisor can manage outreach and qualification of counterparties to limit how long your information remains in circulation.

The Deal Team

Leverage Your Advisor

Confidentiality is easier to maintain when you have an experienced advisor controlling the flow of information. Your banker can field early inquiries, manage NDAs, and serve as gatekeeper so you’re not juggling buyer conversations and risking unguarded disclosures.

Choose Who’s In The Loop

Decide in advance which members of your team will know about the sale process and when they will be informed. Start with essential personnel like your CFO and COO. Develop a thoughtful communication plan to explain the need for confidentiality.

Keep Meetings Confidential

Be mindful of what appears on your company calendar and who visits your location. When possible, conduct management meetings off-site. Keep company tours to a minimum, and design them in a way that avoids raising employee suspicion.

The Counterparty

Don’t Engage With The Wrong Buyers

Got a bad feeling about a potential buyer? Does a buyer have a reputation for unethical behavior? Trust your gut. If including a direct competitor that has previously stolen business or employees makes you uncomfortable, you don’t have to involve them.

Ask About Their Process

A serious buyer should have a well-defined process for protecting your information. If it’s a large strategy, who in the organization will see the data? If it’s a financial investor, who will they share the CIM with? Will they need to fundraise externally, which could require sharing your information more broadly? Review the definition of “representatives” in your NDA to ensure you’re comfortable with its scope.

Protect Confidentiality During Your Business Sale

Maintaining confidentiality throughout the sale of your business is key to safeguarding its value and avoiding unnecessary disruption. By taking the right steps, you can better control the flow of information and reduce the risk of damaging leaks. If you are preparing for a sale, speak with the Roadmap Advisors team to develop a strategy that protects your interests from the very beginning.

EBITDA has become a widely used metric in business and investing circles, yet it’s often misunderstood or misused. Short for earnings before interest, taxes, depreciation, and amortization, EBITDA aims to reflect a company’s core operating performance. It’s frequently cited in dealmaking, private equity, and financial reporting, but its popularity can mask some real limitations.

In this article, we break down what EBITDA really means, how it differs from similar metrics, why investors rely on it, and where caution is warranted.

What EBITDA Really Means

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It offers a snapshot of a company’s operational performance, stripped of financial structure and accounting choices. The idea is to isolate profit generated through normal business activity, without the noise of financing decisions, local tax rules, or large non-cash charges.

To calculate EBITDA, analysts usually start with net income and add back interest expense, tax expense, depreciation, and amortization. Some prefer starting with EBIT (earnings before interest and taxes) and then adding depreciation and amortization from there. 

Either method leads to the same place: a figure that gives an idea of recurring operational earnings before non-operating or accounting-driven items come into play.

How EBITDA Differs From EBIT & Operating Income

While EBITDA and EBIT are often mentioned together, they are not interchangeable. EBIT stops after removing interest and taxes from net income, leaving depreciation and amortization untouched. EBITDA goes further by removing those as well, which often leads to a larger number, especially for companies with significant fixed assets.

For companies with heavy capital investment, such as telecom providers or energy infrastructure firms, EBITDA can look much stronger than EBIT. It can create a more favorable image of profitability, even though those non-cash expenses represent real long-term costs tied to equipment and assets.

Why Investors Focus On EBITDA

EBITDA remains popular because it smooths out differences that can make comparing businesses difficult. Interest expense depends on a company’s financing choices, which vary widely. Some companies carry significant debt; others stay nearly debt-free. EBITDA removes this variable, which can help investors compare operational efficiency across different capital structures.

Tax expense is another factor that varies by location, regulation, and specific tax credits or deductions. Stripping out taxes offers a clearer view of how a business performs before jurisdictional differences come into play. Depreciation and amortization are non-cash expenses, often tied to past investment decisions or intangible assets. While EBITDA excludes non-cash charges, it does not account for working capital changes or capital expenditures, making it a rough estimate of operational performance, not actual cash flow. Because of these qualities, EBITDA often plays a role in debt agreements, especially when setting performance covenants. 

It also serves as the denominator in common valuation multiples like EV/EBITDA, which compares enterprise value to operational performance. In stable industries, 8 to 10 times EBITDA is often cited as a fair range. Growth sectors like SaaS can see multiples as high as 14 to 18 times, depending on market conditions and expectations.

Where EBITDA Can Mislead

Despite its usefulness, EBITDA has received its share of criticism. Some have criticized that removing depreciation and amortization ignores the real cash costs of maintaining and replacing business assets.

Asset-heavy businesses often show strong EBITDA while still bleeding cash. Airlines, for instance, may report a positive EBITDA figure even during years when their capital expenditures far exceed their cash from operations.

Adjusted EBITDA is another metric that often raises questions; companies often modify the standard EBITDA calculation by adding back items they label as non-recurring. Some of these adjustments are reasonable. One-time restructuring costs, disaster-related losses, or asset impairments can distort a company’s normal earnings, so excluding them helps clarify the core picture.

Others, though, are more questionable. Various factors such as ongoing legal fees, stock-based compensation, and regular rent adjustments appear frequently in SEC comment letters, flagged as inappropriate if presented as “non-recurring.”

In M&A, adjusted EBITDA plays a key role in purchase price negotiations and is often the basis for valuation, earn-outs, or debt covenant compliance. Because of this, both buyers and sellers must carefully vet what counts as an “adjustment.”

The SEC has increased its scrutiny of these adjustments, noting in a 2024 review that nearly 30% of comment letters involved concerns with non-GAAP metrics like adjusted EBITDA. While SEC scrutiny primarily affects public companies, private company sellers preparing for a sale should still follow best practices in labeling and justifying adjustments to avoid valuation disputes.

EBITDA Margin Shows Efficiency

EBITDA margin is calculated by dividing EBITDA by total revenue, revealing how much profit is produced per dollar of revenue, before factoring in interest, taxes, or depreciation.

Margins can vary widely between sectors. Industrial REITs often report margins north of 70% due to steady rental income and low overhead. At the other extreme, early-stage biotech firms can post negative margins, sometimes reaching negative 100% or more, as they spend heavily on R&D without matching revenue.

Charts or heat maps that show average EBITDA margins by sector can help readers benchmark their own company’s performance or assess how an acquisition target stacks up.

What To Take Away From EBITDA

EBITDA is a widely used tool in financial analysis, offering a clearer look at operational earnings across industries and business models. It strips away many of the variables that complicate comparison, which makes it appealing to investors, lenders, and business owners alike.

Still, its usefulness depends on how well it’s applied. To truly understand these metrics, you need to consider the bigger picture. If you’re considering a business sale, planning an acquisition, or evaluating investment opportunities, a strong grasp of EBITDA is just the starting point. Roadmap Advisors works with business owners, investors, and family offices to provide transaction insight backed by real-world experience.

To learn more, connect with our experienced M&A Advisors by scheduling a consultation online today.