Adjusted EBITDA

EBITDA after removing one-time, non-operating and owner-specific costs, so the number reflects what the business would earn for a new owner.

In more detail

Reported EBITDA includes whatever the current owner ran through the business. Adjusted EBITDA corrects for that: personal expenses, one-time legal costs, an above-market or below-market owner salary, rent paid to a related party at other than market rate. The goal is not a bigger number. It is an honest picture of ongoing earnings that a buyer can underwrite.

For example

EBITDA is $300,000. The owner takes a $200,000 salary where a hired manager would cost $120,000, and the business paid $30,000 in one-time legal fees for a settlement that will not recur. Adjusted EBITDA is $300,000 + $80,000 + $30,000 = $410,000.

If you are selling

This is usually the single number your price is built on. Adjustments you cannot document are adjustments a buyer will remove.

If you are buying

Every adjustment is a claim about the future. Diligence exists largely to test whether each one is real and repeatable.

Related terms

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