Our broker says we need to normalize our EBITDA to show the true earnings power of the business, but I am confused by what adjustments buyers will actually accept. How do we calculate and defend our adjusted EBITDA without looking like we are trying to inflate our numbers?

Question

Tyler Smith · Accepted Answer

Buyers expect a clear, honest representation of your company's true earning power, but overreaching on adjustments will destroy your credibility. To normalize your EBITDA, you must focus strictly on defensible, non-recurring, and owner-specific expenses. Start with your compensation. If your salary as owner is significantly above or below the market rate for a hired executive, adjust it to a true market-rate salary. If you pay yourself a high distribution but a low base salary, normalize the base to what it would cost to hire a qualified leader to fill your seat on the Accountability Chart. Next, identify clear one-time expenses. These include non-recurring legal fees from a specific dispute, costs associated with a one-time software migration, or relocation expenses for a facility move. Avoid trying to add back standard operational expenses like ongoing marketing tests or routine equipment maintenance, as buyers will reject these and question your integrity. Keep a meticulous paper trail for every adjustment you claim, with invoices and ledger entries ready for inspection. By presenting a clean, conservative list of adjustments that are backed by hard data, you build trust with the buyer and protect your valuation throughout the due diligence process.