What is EBITDA? A Guide for Crypto Founders

If you are starting a crypto business, it’s important to understand some basic financial terms. One of these terms is EBITDA. It may look like a big, confusing word, but don’t worry we’ll break it down into simple parts so it’s easy to understand.

EBITDA is a critical indicator of operational performance, allowing founders to evaluate profitability without being affected by external factors like financing and accounting decisions. 

By mastering EBITDA, startup founders can showcase their company’s true earning potential and appeal to potential investors more effectively.

What Is EBITDA?

EBITDA is a financial metric that measures a company’s earnings before the deduction of interest, taxes, depreciation, and amortization.  

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. Let’s break that down:

• Earnings = the money your business makes (profit)

• Before = this means we are not counting certain things yet

• Interest = the money paid on loans or debt

• Taxes = the money paid to the government

• Depreciation = how things like computers or mining machines lose value over time

• Amortization = how things like software or digital tools lose value over time

So, EBITDA shows how much money your business makes before counting interest, taxes, and the “loss of value” of certain items.

Also Read: Learn How to Earn Staking Rewards By Holding Crypto Asset

Why Is EBITDA Important for Crypto Startups?

Crypto businesses can be very different. Some may mine coins, others may build blockchain apps. 

But all of them need to know if they’re making money in their main work. That’s where EBITDA helps. EBITDA helps you:

• See how well your main business is doing

• Compare your startup to others

• Show investors that your business has strong potential

• Focus on growing your core product or service

Because crypto companies often deal with different tax rules or ways of getting money, EBITDA helps everyone look at the same picture.

What Are the Parts of EBITDA?

Let’s look at the four main things that are taken out before you get EBITDA:

Interest

If you borrow money, you pay interest. But this isn’t part of your main business work. So, we don’t include it when we look at EBITDA.

Taxes

Taxes are different in every country. If two startups earn the same but pay different taxes, it’s not fair to compare them using profit alone. EBITDA removes taxes so we can compare better.

Depreciation

If you buy mining machines, they lose value every year. This is called depreciation. But this “loss” isn’t cash going out today. EBITDA ignores this so we can focus on what the business is doing right now.

Amortization

Let’s say you pay to build software or a website. That cost is counted slowly over many years. Like depreciation, it’s not actual cash today. EBITDA removes this too.

Why Investors Like EBITDA

When someone wants to invest in your startup, they want to know if your business idea works. EBITDA helps show that. Here’s why investors like to see your EBITDA:

• It shows your company’s earning power from normal activities

• It avoids confusion from different loan deals or tax setups

• It gives them a way to compare you with other startups, even if your business models are different

Also Read: Crypto Exchange API Solutions

What EBITDA Doesn’t Show

While EBITDA is useful, it’s not perfect. It does not show:

Real Cash Flow

EBITDA is not the same as the cash in your bank. A company might have a strong EBITDA but no cash to pay the bills.

Working Capital

If you have money stuck in things like unsold tokens or unpaid bills, EBITDA won’t show that.

Debt Levels

EBITDA doesn’t count the interest from loans. So, a company with a lot of debt might look better than it really is.

Future Costs

Crypto companies may need to spend a lot to keep systems running. Things like buying better mining gear or upgrading blockchain software won’t be shown in EBITDA.

Overall Profit

EBITDA is not the same as your net income (total profit). Net income includes everything, so you’ll still need to check that too.

How Crypto Founders Can Use EBITDA

EBITDA can help you make smart choices as you build your crypto business. Here’s how:

Track It Often

If your EBITDA is going up over time, that’s a good sign. It means your core business is growing stronger.

Show It to Investors

When you pitch your project, share your EBITDA. It can help build trust and show your project is stable.

Compare with Others

Use EBITDA to compare your business with others in the crypto world, no matter how they’re set up.

Plan Ahead

Knowing your EBITDA helps you plan when to scale, raise funds, or improve your operations.

EBITDA Is a Guide, Not the Whole Story

Think of EBITDA as a compass. It helps you see if you’re heading in the right direction, but it doesn’t show everything. You should still look at:

• Net profit

• Real cash flow

• Costs of getting new users

• How long users stay with you

• Token usage or TVL (Total Value Locked) if you’re in DeFi

Learn More with M Accelerator

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Conclusion

Understanding EBITDA can help you grow your crypto startup with confidence. It shows you how your core business is doing and helps you speak clearly to investors. Just remember: it’s one of many tools in your startup toolbox!

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FAQ

Do I need to care about EBITDA if my startup isn’t making money yet?

Yes! EBITDA can still show that your operations are improving and heading toward success.

How is EBITDA different from net profit?

EBITDA removes some costs (like interest and taxes) to focus on how well your main business works. Net profit includes all costs.

Can I use EBITDA to show how much my business is worth?

Yes, many investors use EBITDA to help value businesses. But you should also include other metrics to show the full picture.

Why take out depreciation and amortization?

Because these are not real cash costs today. Removing them helps you focus on what your business is earning right now.

What else should I track besides EBITDA?

Track things like:

• Cash flow

• Token or coin use

• Customer growth

• Cost to get new users

• How much money users bring over time