What 'true EBITDA' actually means for a medspa, and why most owners get it wrong

Ask ten medspa owners what their EBITDA margin is, and you'll get ten different answers, most of them wrong in the same direction: too high, because the chart of accounts is hiding owner compensation, personal expenses run through the business, and one-time costs inside recurring line items.

EBITDA (earnings before interest, taxes, depreciation, and amortization) is supposed to represent the cash-generating power of the business itself, independent of how it's financed or who owns it. For a medspa, that means normalizing a few things almost every set of books gets wrong on the first pass.

Owner compensation is the biggest one. If you're paying yourself a below-market salary (or none at all) and taking distributions instead, your P&L understates true labor cost. A buyer, or an honest internal read of profitability, adds back a market-rate replacement salary for whatever role you're actually performing, whether that's injecting, managing staff, or both.

Related-party and personal expenses are the second. Vehicle leases, family on payroll without a defined role, travel that isn't clearly business development, these all need to be identified and added back (or left in, if you're being conservative) with a clear rationale either way. The goal isn't to make the number look better than it is; it's to make it accurate.

One-time costs get the opposite treatment: equipment down payments, legal fees from a one-off dispute, or a rebrand should usually be excluded from a run-rate EBITDA calculation, since they won't recur.

Per-service profitability is where most owners have zero visibility. Revenue by category tells you what's selling; it doesn't tell you what's profitable after provider comp, product cost, and equipment financing are allocated. We've seen practices where a heavily marketed service line was actually a net drag on profitability once true costs were allocated, while a quiet, unmarketed service was the highest-margin thing in the building.

None of this is exotic accounting. It's the same normalization process used in lower-middle-market M&A, applied to a business that's usually run on QuickBooks Online with a chart of accounts inherited from a bookkeeper who's never seen a medspa's actual cost structure. Getting it right doesn't require selling. It requires knowing, today, whether the business you're running is as profitable as you think it is.