Buy and Sell: Why Add-Backs & EBITDA Normalization Can Make or Break Your Deal.  What are they?

Buy and Sell: Why Add-Backs & EBITDA Normalization Can Make or Break Your Deal.  What are they?

When a business changes hands, everybody talks about multiples.

“Manufacturing trades at 5–7x EBITDA.”
“Service firms go for 4–6x.”

That’s great but you know what? The multiple matters far less than the number you apply it to. And that number is normalized EBITDA—NOT whatever happens to be on last year’s tax return.

That’s where add-backs and EBITDA normalization come in. 

What Are Add-Backs?

Add-backs are adjustments we make to a company’s financials to answer one key question:

“What will this business really earn under a typical new owner?”

They remove:

• Owner-specific decisions
• One-time or unusual items
• Discretionary and personal expenses
• Non-operating income or expenses

The goal is to isolate ongoing, maintainable EBITDA—the number buyers are actually buying.

Why Normalization Matters So Much

A few “small” add-backs can move the needle dramatically.

Example:

• Reported EBITDA: $710,000
• Valid add-backs: $190,000
• Normalized EBITDA: $900,000

At a 4.5x multiple, that difference is worth:
👉 $855,000 in value

This is why serious buyers, sellers, lenders, and valuation professionals obsess over normalization.

Stay tuned for Thursday where we will provide a simple one page cheat sheet on how to calculate normalized EBITDA.

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Contact us now at www.gw-legacy.com | mwillard@gw-legacy.com