The One Number Every Small Business Owner Should Know (But Most Don't)

Ask most small business owners how their business is doing and they'll tell you revenue. That's the number they watch, brag about, and use to benchmark themselves against peers. Revenue matters — but it's also the most misleading number in your business.

The number that actually tells the story is EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization.

What EBITDA actually measures

EBITDA strips out the noise — financing decisions, tax strategy, accounting elections — and shows what the business actually produces from its core operations. It's the closest thing to a standardized answer to the question: "Is this business generating real value?"

For a small business doing $500K-$3M in revenue, a healthy EBITDA margin is typically 15-25% of collections. If yours is lower, you either have an overhead problem, a pricing problem, or a revenue mix problem. Usually it's some combination of all three.

Why it matters beyond day-to-day operations

When you go to a bank for a loan, EBITDA is what they underwrite. When a buyer evaluates your business, EBITDA is what they pay a multiple on. A business doing $1M in revenue with a 10% EBITDA margin and a business doing $1M with a 22% margin are not worth the same thing — they're not even in the same conversation.

How to find yours

Pull your most recent 12-month P&L. Start with net income. Add back interest expense, taxes paid, depreciation, and amortization. Add back any owner salary above market rate (a common adjustment for small businesses). Divide by total revenue. That percentage is your EBITDA margin.

If that number is lower than 15%, there's almost certainly a clear, fixable reason — and finding it is exactly what a Diagnostic Sprint is designed to do. The first conversation is free.