Cash flow never lies. EBITDA does.
“You must stop deceiving yourself before you can stop being deceived by others.” - Epictetus
Most MBA programs still teach the same outdated idea: that EBITDA is the best way to measure the financial health of a company. Maybe that works if you run Microsoft or Nestlé. Most of us don’t. We are building companies where every dollar counts, where the next payroll depends on actual cash in the bank.
That’s why EBITDA doesn’t just fall short—it’s dangerous. It paints a rosy picture while hiding the leaks beneath. I’ve sat with dozens of clients who proudly show strong EBITDA… and then admit they tapped their credit line to cover expenses. The report looked clean. Reality was messy.
So if your business is constrained by cash, if access to capital is one of your top five challenges (like it is for most entrepreneurs I coach), then EBITDA is the wrong tool for the job. And the sooner you stop measuring your business with someone else’s metric, the better decisions you’ll make.
When Capital Is Limited, EBITDA Lies
If you run a capital-intensive business, EBITDA is especially misleading. It ignores depreciation and amortization—as if those weren’t real costs. But if you’re constantly reinvesting in machinery, vehicles, or equipment, pretending that depreciation “doesn’t count” is just bad business. It might make your report look prettier, but it won’t help you manage reality.
In my own company, we learned this the hard way. We operate in a business that constantly needs reinvestment: new ice machines, more inventory, more vessels. If I use EBITDA as my metric, I’m lying to myself. The number might look great, but it hides the fact that our cash flow is tight and reinvestment is ongoing. It’s not a one-time purchase, it’s the cost of growing.
In my case, I stay focused on net profit—because taxes in Nicaragua are a big deal. But that’s not the only reason. We run a capital-intensive business. We’re constantly investing in new machines, expanding inventory, buying more ice makers, more boats. That’s the reality of our growth. If I strip out depreciation to make the numbers look better, I’m lying to myself. It’s not a one-time event, it’s an ongoing cost of doing business. And if you ignore it, the numbers might look cleaner, but they won’t be true.
And it’s not just me. I’ve had clients in industries like logistics, agriculture, and manufacturing—businesses with real assets and physical operations—where EBITDA suggested the business was thriving. But one look at the bank account, and it was clear: they were surviving, not thriving.
Here’s the issue. EBITDA was designed for companies that can raise capital easily. If that’s not you, you need something else. You need metrics that reflect your actual bottlenecks, not ones that hide them.
What to Track Instead: Real Cash Flow
If capital is your constraint, then cash should be your focus. Full stop.
One of the most important numbers I track in my own business is free cash flow. Not a theoretical version, not “adjusted” earnings, but actual movement: the change in our bank account plus the change in our debt. That number tells the truth. It tells me if we’re building a healthier company—or if we’re burning through money without noticing.
A powerful way to sharpen your cash flow management is by using a 13-week rolling cash flow projection. Every week, you update the forecast for the next 13 weeks using the actual data from the week that just ended. That insight reshapes your forward view. You’re constantly projecting, comparing, correcting, and adjusting.
Over time, this practice reveals patterns. It forces you to confront reality. And after just 3 or 4 quarters of doing it consistently, you’ll stop guessing and start anticipating. You won’t just know your numbers, you’ll understand the pulse of your business in real time.
This is what most entrepreneurs need to focus on. Not how impressive their numbers look in a pitch deck, but how resilient their business is when things get tight. Because they will. Every quarter brings surprises. What matters is whether you’ve built a company that can breathe, or one that’s always suffocating behind a clean-looking P&L.
As our friend Alan Mills says:
“Revenue is vanity. Profit is sanity. But cash flow is king.”
Another metric worth watching—especially if your business isn’t burning cash but bleeding slowly—is gross margin. As our friend Greg Crabtree puts it, “Gross margin tells you how efficiently your business makes money.” It’s not perfect, but it’s honest. It doesn’t hide capital costs behind accounting tricks. It forces you to see how much value you’re really creating after direct costs. In some models, tracking both free cash flow and gross margin gives you a fuller picture: one shows the blood pressure, the other shows the heartbeat.
Gross margin is useful. Profit per employee can be revealing. But when your biggest challenge is funding operations, then cash flow becomes the most important indicator of all. It’s your financial pulse. If you’re ignoring it, you’re not managing your company. You’re just hoping it works.
The measure that works best for you has to match your biggest constraint. If your business is limited by access to capital, then cash isn’t just a number, it’s your survival. How much are you generating? How much are you holding? How much moved in or out this quarter? That’s what matters. Cash, cash, cash. You have to be great at managing your cash flow — because if cash is your bottleneck, it should also be in your dashboard.
If You Can’t Raise Capital, Then Execute Better Than Anyone
The truth is, most founders don’t have access to the kind of capital that makes EBITDA make sense. They’re not sitting on proprietary technology. They’re not launching billion-dollar platforms. They’re not going public next year. And that’s okay, if they get one thing right:
They must out-execute everyone else.
Execution is your competitive advantage when capital isn’t. That means hiring better people. Leading with more clarity. Following your process with rigor. Creating a culture that moves fast and makes decisions. And being obsessed with operational excellence, because you can’t afford not to be.
If you don’t have access to funding, then your discipline is your funding. Your cash flow is your edge. Your ability to plan, to manage inventory, to forecast expenses and avoid leaks, those become your lifelines. Not theory. Not adjusted metrics. But real financial control.
Most of the entrepreneurs I coach don’t have easy access to capital. That’s the reality for most businesses. So if you’re not running a venture-backed startup with breakthrough tech, you have one job: be the best at executing your strategy. Hire better. Lead better. Deliver better. If you don’t, no spreadsheet metric will save you.
Charlie Munger, vice-chairman of Berkshire Hathaway and one of the sharpest investors of all time, said it best:
“Every time you hear EBITDA, just substitute it with ‘bullshit earnings.’”
And he’s right. EBITDA can become a tool for self-deception. It lets us look smart while staying blind. It gives us something to brag about at networking events while avoiding the hard conversations we need to have with ourselves.
Too often, we don’t just lie to ourselves: we perform for others. I’ve seen business owners brag about their EBITDA like it’s a badge of honor. It becomes an ego game: “Here’s my number, what’s yours?” But if you can’t meet payroll, if your vendors are waiting, if you’re losing sleep at night, what’s the use? The number might win applause at networking events, but it won’t build a resilient company.
As Marcus Aurelius said:
“The first and greatest obstacle to knowledge is not ignorance — it is the illusion of knowledge.”
If your metrics make you feel better but don’t help you run your business better, then it’s time to change the metrics.
You don’t need a better-looking spreadsheet. You need brutal clarity. You need to manage the business you actually have—not the one your MBA textbook prepared you for.
And most of all, you need to stop lying to yourself.