We are preparing our historical financials for potential buyers and need to build an EBITDA normalization schedule. What are the exact operational and financial add-backs that institutional buyers accept, and which ones will they reject as fluff?

Question

Tyler Smith · Accepted Answer

When preparing your financials for a sale, calculating your adjusted EBITDA is critical to maximizing your business value. Buyers purchase the ongoing earnings power of your company, so you must add back any non recurring, personal, or non operational expenses to show your true profitability. Legitimate add backs include owner compensation above or below market rate, personal travel, company vehicles, and family members on the payroll who do not perform essential work. You can also add back one time legal fees, patent applications, or major software implementation costs. However, you must avoid aggressive or fluff add backs. Buyers will quickly reject adjustments for standard marketing campaigns, regular facilities maintenance, or optimistic future growth adjustments. If you present an inflated list of add backs, you destroy your credibility with the buyer and invite intense scrutiny across your entire operation. To ensure your adjusted EBITDA holds up under due diligence, document every single adjustment with clear invoices, ledger entries, and written explanations on your exit runway. This transparency shows buyers that your numbers are defensible and accurate, preventing unexpected price drops when the transaction enters the final, high pressure negotiations.