Adjusted EBITDA
EBITDA + Add-backs − SubtractionsAdjusted EBITDA normalizes EBITDA by removing one-time, non-recurring, or non-operating items. Common adjustments include owner perquisites, one-time legal costs, above/below-market rent, and related-party transactions.
How it's used in a deal
The adjusted figure is typically what lenders and investors use for loan sizing and valuation. Every adjustment should be documented and defensible.
Worked example
Fictional Precision Auto Service, FY 2024. Missing inputs remain unavailable.
Adjusted EBITDA: Not available. Expense categories or depreciation/amortization are not fully reported and mapped.
Inputs and supported results from our fictional sample deal report — Fictional, incomplete example. No real customer documents, verified source support or independent accountant review are supplied.
Important caveat
Lenders may scrutinize add-backs that exceed 20% of EBITDA. All adjustments should have clear documentation.
Frequently asked questions
What add-backs will a lender accept?
Documented one-time items (a lawsuit, a flood repair), clearly personal expenses run through the business, and owner compensation above market rate. Vague 'consulting fees' or recurring 'one-time' items get rejected — and add-backs above roughly 20% of EBITDA invite scrutiny of every line.
Who verifies add-backs in a deal?
Ultimately the lender's underwriter and your diligence advisor. Each adjustment should trace to source documents (invoices, payroll records, bank statements). Undocumented add-backs are negotiating leverage for the buyer, not value for the seller.
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Educational content from a decision-support tool — not a CPA audit, review, or assurance engagement, and not tax, legal, or investment advice.