Normalizing EBITDA For Valuation of a Company

Normalizing EBITDA For Valuation of a Company 

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When valuing a company, normalization is the difference between a fair deal and a flawed one. The most common adjustments we see on nearly every transaction include:

1. Owner Compensation & Family Payroll

• Above/below-market owner salary
• Spouse or kids on payroll at non-market rates
• Extra retirement contributions or perks

2. Discretionary / Personal Expenses

Legitimate for tax planning, but not required to run the business:

• Personal travel & meals
• Personal auto expenses
• Club dues & sponsorships
• Home office costs a buyer won’t need

3. One-Time or Non-Recurring Items

• One-off legal fees
• Settlements
• Major system implementations
• Relocation, storm damage, unusual repairs

4. Non-Operating Items

Items unrelated to core operations:

• Rental income from unrelated property
• Investment gains/losses
• Interest income/expense (already outside EBITDA)

Why I Built an Add-Back & EBITDA Normalization Calculator

I use an Excel-based tool that:

• Pulls in financials and categorizes add-backs
• Explains the “why” behind each adjustment
• Shows reported vs. normalized EBITDA
• Highlights valuation impact across multiples

For owners, it’s an eye-opener.
For buyers, it’s a stress test.
For lenders, it’s clarity.

Final Thought

Don’t start with “What’s the multiple?”
Start with: “Have we properly normalized EBITDA?”
Because buyers don’t pay for clever accounting—they pay for real, repeatable earnings.

If you’d like a one-page Add-Back Cheat Sheet, send me a message and I’ll share it.

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🌐 www.gw-legacy.com | 📧 mwillard@gw-legacy.com

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