We are preparing our company for sale and want to make sure we clean up our historical financials. How do we define and defend owner-related expenses and non-recurring operational adjustments to present a bulletproof normalized EBITDA to a sophisticated buyer?

Question

Tyler Smith · Accepted Answer

Sophisticated buyers and their Quality of Earnings teams will scrutinize every single adjustment you make to your historical EBITDA. If your add-backs look like aggressive fluff, you will lose credibility and invite a valuation re-trade. You must present a clean, defensible set of adjustments. Start by categorizing your owner-related expenses into clear, indisputable buckets. - Owner compensation adjustments must normalize your salary to fair market value for a replacement executive. - Non-recurring operational costs, such as one-time software integration fees, must be fully documented with invoices and project plans. - Personal expenses run through the business, like auto leases or family member salaries, must be clearly backed out with matching ledger entries. Use your EOS Accountability Chart to support these adjustments. If you are stepping away as the owner and your Integrator is taking over your responsibilities, show that the Integrator's market-rate salary is already fully loaded into your financial statements. Do not make the mistake of adjusting for standard, recurring business investments. If you invested in AI-driven automation workflows, do not try to capitalize those operating expenses unless they are truly one-time development costs. Presenting a professional, transparent adjustment schedule early in the process establishes trust and prevents the buyer from clawing back your valuation during due diligence.