What is normalised EBITDA and why do buyers adjust it?
Short Answer
Normalised EBITDA restates reported earnings to remove one-off items and owner-specific costs, showing the sustainable earning power a buyer would inherit. Buyers adjust it because the multiple is applied to this figure, so it sets the price.
Full Explanation
Normalised EBITDA, often used interchangeably with adjusted EBITDA (though adjusted EBITDA usually means a company's own measure of what it excludes), is the number a business is really valued on.
Reported earnings include things that will not recur under new ownership: an above-market owner's salary, personal costs run through the business, exceptional legal or restructuring costs, and the effect of non-market related-party arrangements. Normalising strips these out — and removes genuine one-offs — to show the earnings the business will actually generate for a buyer. Adjustments run both ways: an owner paid below market, or a related-party rent below market, is restated at market rates, which reduces the figure. Because a business is typically valued as a multiple of normalised EBITDA, each adjustment changes the price directly: a defensible add-back can be worth several times its face value once the multiple is applied.
Buyers scrutinise every adjustment in a quality of earnings review, so a seller needs evidence for each one, not just an assertion. Presenting a clean, well-supported normalised EBITDA — ideally backed by your own vendor analysis before you go to market — is among the most valuable preparation an owner can do.
Our normalised EBITDA guide sets out each adjustment, which way it goes and a worked EBITDA bridge. See also how much is my business worth and the normalised EBITDA definition.
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Further Reading
A potential obligation arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the entity's control, or a present obligation where payment is not probable or the amount cannot be reliably measured.
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