Our CPA tells us we have plenty of owner add-backs that will boost our adjusted EBITDA, but our M&A advisor warns that buyers will aggressively challenge them. How do we track and document our adjustments on our exit runway so they are bulletproof during due diligence?

Question

Tyler Smith · Accepted Answer

The major operational error owners make on their exit runway is waiting until due diligence to defend their EBITDA adjustments. If your adjusted EBITDA relies on a messy list of owner add-backs that you have to explain away, a sophisticated buyer will discount your valuation or walk away. You must normalize your financial records long before you go to market.

To do this, create a transparent, systemized process for tracking these adjustments. Work with your financial seat holder to create a separate ledger or a clean monthly reconciliation report for any non-recurring or personal expenses. This includes owner salaries that are above market rate, one-time legal fees, or personal vehicles.

Every add-back must have a clear, documented audit trail that is verified during your monthly financial reviews. If you cannot easily prove an adjustment with a receipt or a third-party invoice, do not include it. When your books are completely clean and every adjustment is fully documented in real time, you project massive financial maturity. This level of transparency instills confidence in a buyer, simplifies the due diligence process, and helps you secure the maximum valuation you deserve.