Adjusted EBITDA
EBITDA + Add-backs − SubtractionsAdjusted EBITDA normalizes EBITDA by removing one-time, non-recurring, or non-operating items. Common adjustments include owner perquisites, one-time legal costs, above/below-market rent, and related-party transactions.
How it's used in a deal
The adjusted figure is typically what lenders and investors use for loan sizing and valuation. Every adjustment should be documented and defensible.
Worked example
Suppose a business reports $336,500 EBITDA, but the year included a one-time $30,000 lawsuit settlement and $12,000 of the owner's personal vehicle costs:
Adjusted EBITDA = $378,500
Numbers from our sample deal report — an anonymized real-world analysis.
Important caveat
Lenders may scrutinize add-backs that exceed 20% of EBITDA. All adjustments should have clear documentation.
Frequently asked questions
What add-backs will a lender accept?
Documented one-time items (a lawsuit, a flood repair), clearly personal expenses run through the business, and owner compensation above market rate. Vague 'consulting fees' or recurring 'one-time' items get rejected — and add-backs above roughly 20% of EBITDA invite scrutiny of every line.
Who verifies add-backs in a deal?
Ultimately the lender's underwriter and your diligence advisor. Each adjustment should trace to source documents (invoices, payroll records, bank statements). Undocumented add-backs are negotiating leverage for the buyer, not value for the seller.
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Educational content from a decision-support tool — not a CPA audit, review, or assurance engagement, and not tax, legal, or investment advice.