Profitability
EBITDA vs cash flow — and why the difference matters
The problem
EBITDA is used as a proxy for cash. It is not one. Owners planning a sale or a loan often optimize the wrong number.
Why it matters
EBITDA sets valuation and borrowing capacity. Cash flow sets what you can actually do next month. Managing one while ignoring the other creates either a fragile business or an undervalued one.
How to know if you have this
- EBITDA is strong but cash is tight
- Working capital and capital expenditure are excluded from planning
- You are considering a sale or refinance in the next 24 months
- Add-backs have never been documented
How Advisory Motion solves it
- 01Calculate EBITDA and reconcile it to operating cash flow every month
- 02Document defensible add-backs before a buyer or lender asks
- 03Model the value of each margin improvement at your likely multiple
- 04Balance short-term EBITDA optimization against the capability the business needs
Illustrative example
One margin point, seven figures of value
At a 5x multiple, a single point of EBITDA margin on $8M of revenue was worth roughly $400K of enterprise value. That reframed a pricing decision the owner had been deferring for two years.
Illustrative composite · not a client identification
Where this connects