By Brian Smith, Co-founder and Managing Partner
When valuing a business, buyers and sellers rarely look at reported net income alone. Instead, they focus on EBITDA as a measure of operating performance. But raw EBITDA often needs refinement to reflect reality.
What Are Normalizing Adjustments?
EBITDA adjustments remove anomalies to present a clear picture of sustainable earnings. Common examples include:
- Owner compensation and benefits – Aligning pay to market rates.
- Non-recurring expenses – Removing one-time legal or consulting costs.
- Discretionary spending – Adjusting for personal or non-business expenses.
- Accounting policy differences – Standardizing revenue recognition or depreciation methods.
Why Do These Adjustments Matter?
Adjusted EBITDA forms the basis for valuation multiples and lending decisions. Overstating or understating adjustments can distort perceived value. LCG ensures adjustments are fully supported and defensible during diligence.
How Does LCG Support Clients?
Our teams evaluate historical data, reconcile management adjustments, and ensure that buyers and sellers are aligned on what truly drives profitability. This transparency protects value and builds trust.
For insight into EBITDA adjustments and how they affect deal valuation, contact Brian Smith at [email protected].