EBITDA Adjustment Worksheet

Document and present normalized earnings for business valuation. Essential for M&A preparation and buyer conversations.

Format: Excel / Google Sheets|Last Updated: January 2026

Key Takeaways

  • •Adjusted EBITDA shows normalized profitability buyers use for valuation
  • •Common add-backs include excess owner comp, one-time expenses, and non-recurring items
  • •Every adjustment needs documentation and business justification
  • •Start preparation 12-18 months before a sale for maximum credibility

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Get our EBITDA adjustment worksheet with common add-back categories and documentation format. Works with Excel or Google Sheets.

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Why Adjusted EBITDA Matters

When selling a business, buyers care about one question: "What will this business earn under my ownership?" Adjusted EBITDA answers that question by removing items specific to the current owner that won't continue post-sale.

The Valuation Impact

Private companies typically sell for a multiple of Adjusted EBITDA. Every dollar of additional adjusted EBITDA can mean $4-8 in enterprise value (or more, depending on your industry and growth).

Example:

Reported EBITDA: $800,000
Legitimate adjustments: +$200,000
Adjusted EBITDA: $1,000,000
At a 5x multiple: +$1,000,000 in value

Common EBITDA Adjustments

The following categories are generally accepted by buyers when properly documented:

Owner Compensation Adjustments

If owner takes above-market compensation, the excess is added back. Must document market rate for comparable role. Includes salary, bonuses, benefits, and personal expenses.

Example: Owner salary $400K, market rate for CEO $250K = $150K add-back

Non-Recurring Expenses

One-time costs that won't recur: legal settlements, facility relocations, major one-time professional fees, severance for terminated executives.

Example: $75K lawsuit settlement = $75K add-back

Personal Expenses Through Business

Personal vehicles, travel beyond business needs, family members on payroll without real duties, club memberships, personal insurance.

Example: Personal vehicle + family insurance = $25K add-back

Related Party Transactions

Above-market rent paid to owner's real estate entity, services from owner-related companies at non-market rates.

Example: Rent $10K/month to owner, market $7K = $36K annual add-back

Adjustments Buyers Will Question

Be conservative. Buyers and their Quality of Earnings providers will scrutinize every adjustment. Questionable adjustments damage credibility for legitimate ones. When in doubt, leave it out or be prepared to defend with documentation.

Worksheet Structure

What's Included

  • Summary Page: GAAP EBITDA to Adjusted EBITDA bridge for 3 years + TTM
  • Adjustment Categories: Organized sections for owner comp, non-recurring, personal expenses, related party
  • Documentation Fields: For each adjustment: amount, description, business rationale, supporting evidence
  • Year-over-Year Comparison: Shows consistency (or explains changes) in adjustment patterns
  • Supporting Schedule Links: References to backup documentation for each item

Documentation Requirements

Every adjustment needs supporting documentation. Here's what buyers expect:

For Owner Comp Adjustments

  • Current compensation documentation
  • Market salary studies/surveys
  • Job description for replacement role
  • Recruiting firm estimates (if available)

For Non-Recurring Items

  • Invoices and receipts
  • Contracts or agreements
  • Explanation of why it won't recur
  • GL detail showing the expense

For Personal Expenses

  • Detail of expenses by category
  • Business vs. personal usage breakdown
  • Methodology for allocation

For Related Party

  • Lease or service agreements
  • Market rate comparables
  • Third-party quotes or appraisals

Best Practices for Presenting Adjustments

1

Start Early

Begin tracking adjustments 12-18 months before sale. Cleaning up mid-process looks suspicious.

2

Be Conservative

Under-claim rather than over-claim. Credibility matters more than maximizing every dollar.

3

Document Everything

Create a clear trail from adjustment to supporting evidence. Make it easy for buyers to verify.

4

Get Professional Help

Have your CFO or CPA review and validate. Consider a seller-side QoE for significant transactions.

Pro Tip: Pre-Sale Clean-Up

The best time to clean up adjustments is before you need them. Eliminate personal expenses from the business, set owner comp closer to market, and unwind related party transactions now. Buyers prefer clean financials over large adjustments.

Frequently Asked Questions

What's the difference between EBITDA and Adjusted EBITDA?

EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization—a standard measure of operating profitability. Adjusted EBITDA adds back one-time, non-recurring, or owner-specific expenses to show the 'normalized' profitability a new owner would experience. Adjusted EBITDA is what buyers care about for valuation.

What add-backs will buyers typically accept?

Generally accepted: Owner compensation above market rate, one-time legal/professional fees, non-recurring expenses (litigation, facility moves), personal expenses run through the business, and terminated employee costs. Buyers will scrutinize anything that looks like it inflates earnings artificially.

How far back should I calculate Adjusted EBITDA?

Typically 3 years of historical Adjusted EBITDA, plus a trailing twelve months (TTM) if mid-year. Buyers want to see trends and consistency. If adjustments vary wildly year-to-year, that raises questions. A consistent pattern of modest, well-documented adjustments is more credible.

Who should prepare my EBITDA adjustments?

Your CFO or fractional CFO should lead the process, with CPA support for documentation. Having a financial professional vouch for adjustments adds credibility. A Quality of Earnings (QoE) report from an independent firm provides additional validation, especially for larger transactions.

Related Resources

Due Diligence Checklist

What buyers will request

Fractional CFO for M&A

CFO support for transactions

Owner Compensation Benchmarks

Market rate reference

What is EBITDA?

Definition and calculation

Preparing to Sell?

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