Translation Centre™ — Translation 03

EBITDA is what you earn. Enterprise value is what a buyer will pay.

Every founder knows their EBITDA. Almost none know their enterprise value — and the gap between the two is where most transaction disappointment lives. Enterprise value is not a multiple applied to EBITDA. It is a judgment about whether the business can sustain those earnings without the founder, under new ownership, at the scale the buyer requires.

The Translation Table

The same operational reality. Four audiences. Four descriptions.

Each audience is technically accurate from where they sit. The language divergence is real — and in a transaction room, it costs value.

FounderOwner-operator

How they say it

We're making $4M EBITDA and businesses like ours sell for 6–7x. So we're worth $24–28M.

What they mean operationally

The founder is calculating enterprise value as a fixed multiple of reported EBITDA. The buyer will apply a completely different analysis.

OperatorCEO / MD

How they say it

EBITDA is $4M. Normalised EBITDA after founder cost adjustments and one-off removals is approximately $3.4M. Enterprise value depends on execution stability and governance architecture quality.

What they mean operationally

The operator knows that raw EBITDA is not what buyers will multiply. Normalisations reduce the base. Multiple compression is applied for governance risk.

M&A AdviserTransaction Adviser

How they say it

At current governance and management depth, we would expect 4.5–5.5x normalised EBITDA rather than the 6–7x peers trade at. The gap is addressable with 12–18 months of operating work.

What they mean operationally

The adviser is translating: the business is currently worth $15–18M, not $24–28M, because buyers can see the governance architecture does not support the higher multiple.

Private EquityOperating Partner

How they say it

Normalised EBITDA is $3.4M. Key person adjustment, concentration discount, and governance infrastructure risk each apply 0.5x compression. Entry at $15–16M is defensible.

What they mean operationally

PE is explicitly pricing each governance deficiency as a multiple compression. Every problem the founder believes is operational reality, the buyer prices as a financial discount.

Translation Gap The founder calculates enterprise value as EBITDA × multiple. The buyer calculates it as normalised EBITDA × base multiple, minus governance discount, minus concentration discount, minus key person discount. The difference between those two calculations is the basis for most transaction disappointment.

What the gap costs

The value consequence of speaking different languages in the same room.

EBITDA tells the buyer what the business earned last year. Enterprise value is the buyer's assessment of what the business will earn over their hold period — under their governance, with their capital, and without the people who generated the historical EBITDA. Every governance weakness is a discount applied between the two.

Connected Architecture

Frameworks, doctrine, and tools that close this translation gap.

Glossary TermsEBITDA Enterprise Value EV/EBITDA Multiple Exit Multiple quality of earnings explained

Related MandatesFocused Mandate Operating Partner

Translation Centre™

Eight translations. One operating architecture.

Founder vs PE Language Revenue vs Revenue Quality EBITDA vs Enterprise Value Founder Dependency Working Capital Quality of Earnings Governance vs Control Growth vs Scalability ← All Translations

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