If you've ever looked at your financial reports and found yourself wondering what EBITDA and net income really mean, you're not alone.
These two terms show up often in financial statements, but they tell very different stories.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. In simple terms, it gives you a picture of how well your business is performing from an operational standpoint, before any financial decisions or accounting adjustments come into play.
Net income, however, is the final figure after all expenses, taxes, and interest are deducted. It’s the number that reflects your actual profit and is typically what shows up on your tax return.
Let’s look at some examples. Say you run a small marketing agency. EBITDA would reflect your revenue from client projects minus regular operating expenses like software subscriptions, staff wages, office rent, and utilities. It would not factor in interest on a business credit card or depreciation on your office equipment.
Net income, however, would include those items, giving you a more comprehensive view of your true profit.
Or take a retail shop owner who took out a loan for a shop renovation. EBITDA would show how profitable the store is from sales after paying suppliers and staff, but net income would show the impact of repaying that loan and the wear and tear on the new fit-out.
Both numbers are useful, but they serve different purposes. EBITDA is often helpful for tracking operational health and comparing performance across time or other businesses, while net income helps you prepare for tax season and plan for reinvestment or withdrawals.
If these numbers still feel unclear or you’re not sure which one to pay attention to when making decisions, we’re here to help. We’re bookkeeping experts who help small business owners get clear around their numbers so they can scale and grow with confidence.
