What is adjusted EBITDA?
EBITDA restated as it would look under a new owner — owner compensation at market rate, one-offs removed, personal costs stripped. It is the figure valuations actually use.
EBITDA restated as it would look under a new owner. Owner compensation at a market rate, genuine one-off costs removed, personal and non-operating costs stripped out. Nearly every valuation uses this figure rather than reported EBITDA.
Adjustments a buyer will accept
- Owner compensation above a market rate for the work actually done
- Genuine one-offs — a legal settlement, a relocation, a failed product launch
- Non-operating costs: the vehicle nobody drives for the business, personal insurance
- Related-party rent above market rate
- Costs of a product line the buyer will not inherit
Adjustments they will not
Your full salary — you still did work, and someone must be paid to do it. "One-off" costs that appear in all three years. Growth investment you would have made anyway. Deferred maintenance, which is not spending rather than earning.
Evidence matters more than logic
An add-back with an invoice behind it survives due diligence. An add-back with an explanation behind it does not. Collect the evidence while you still remember what each item was — usually a year earlier than owners expect.
How EBITDA affects your valuation covers each adjustment in detail; common valuation mistakes covers what happens when this is done in the final quarter.