EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It is a widely used financial metric that evaluates a business’s operational profitability by excluding certain non operating expenses and accounting adjustments.
In franchising, EBITDA is frequently used to measure:
franchisee unit profitability
systemwide financial performance
the value of multi unit holdings
the strength of a franchise resale market
EBITDA provides a clearer picture of operational performance than gross revenue alone.
EBITDA is a critical financial indicator because it:
reflects operational efficiency
helps prospective franchisees evaluate unit economics
predicts potential returns on investment
supports comparisons across locations
influences business valuations during franchise resales
helps multi unit operators assess portfolio performance
For franchisors, EBITDA analysis helps identify:
cost of goods performance
labor efficiency
expense trends
underperforming territories
scalability across markets
If a franchisor includes EBITDA in Item 19, they must follow strict FTC compliance rules:
all EBITDA calculations must use consistent definitions
adjustments must be fully explained
sample sizes and time periods must be disclosed
costs included or excluded must be transparent
the franchisor must keep substantiation for all figures
no “pro forma” EBITDA may be used unless the franchisor has a reasonable basis
State examiners often review EBITDA based FPRs carefully because they can be misleading if not clearly explained.
EBITDA excludes:
interest
taxes
depreciation
amortization
Net income includes these items.
This means EBITDA focuses on operating performance, while net income reflects the full impact of financing and accounting decisions.
Franchisees typically rely on EBITDA for:
evaluating whether a location is profitable
comparing performance to system averages
determining investment feasibility
analyzing multi unit potential
preparing financial statements for lenders or resale buyers
Lenders and acquirers often use EBITDA multiples to value franchise units.
Adjusted EBITDA may exclude:
owner’s compensation
one time expenses
marketing fund pass throughs
non recurring operational costs
corporate required remodels or upgrades
extraordinary events
Adjusted EBITDA must be handled carefully and uniformly in Item 19 to avoid misleading claims.
Franchise Disclosure Document
FDD Renewal
Material Change
Franchise Examiner
Franchise Exemption
Notice Filing State
Non Registration State
Registration Filing State
Stop Order
Franchise Registration Management
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Integrated Document Signing
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Last updated: November 26, 2025
