Adjusted EBITDA is your operating profit restated to show what the business earns for a new owner. Since the sale price is a multiple of this number, every defensible pound you add back is worth 3x to 6x its value in price, and every rejected add-back costs the same multiple in credibility. The dividing line is simple: would this cost genuinely not exist under new ownership, and can you prove it?
Add-backs buyers routinely accept
- Excess owner compensation. The difference between what you pay yourself and the market rate for your replacement. If you pay yourself £300K and a hired MD costs £150K, the £150K difference is a clean add-back. Note it cuts both ways: underpaying yourself creates a deduction.
- Personal expenses through the business. Vehicles, travel, family phone plans, the home office. Accepted when itemised and evidenced, resented when vague.
- Genuine one-offs. A lawsuit settled, a rebrand, a one-time relocation, exceptional recruitment fees. The test is non-recurrence: it happened once, for an identifiable reason, and is complete.
- Discontinued activities. Losses from a killed product line or closed channel, provided the closure is real and the revenue is also removed.
- Family members on payroll above market rate, or roles that will not be replaced.
Add-backs buyers push back on
- "Growth marketing we could cut." Buyers treat marketing that drives current revenue as a running cost. Claiming it as discretionary invites the response: then your revenue is discretionary too.
- Recurring "one-offs." A legal dispute every year is a cost of doing business. Three consecutive years of exceptional items is a pattern, not an exception.
- Below-market arrangements that will not survive the sale. Rent from a related party at half market rate, a founder friend doing the design work cheap. These create deductions, and finding them late damages trust.
- Synergy claims. What the buyer could save by merging operations is the buyer's upside, and they do not pay you for it.
- Round numbers without paper. An add-back estimated at "about £50K" reads as negotiable. The same figure with twelve invoices behind it reads as fact.
A simple worked bridge
| Item | Amount |
|---|---|
| Reported EBITDA | £1,120,000 |
| + Owner salary above market replacement | £110,000 |
| + Personal vehicles & travel | £38,000 |
| + One-off warehouse relocation | £64,000 |
| - Market rent adjustment (related-party lease) | (£42,000) |
| Adjusted EBITDA | £1,290,000 |
At a 5x multiple, the £170K of net adjustments in this bridge is worth £850K of price. That is why the add-back file deserves real work, and why it should be built as costs occur rather than reconstructed at sale time.
How to present adjustments
Keep the schedule short, evidenced, and conservative. Five bulletproof add-backs beat twelve arguable ones, because the first rejected claim licenses the buyer to challenge the rest. In a well-prepared process, the adjustment schedule is agreed early with supporting documents, and diligence confirms it rather than litigating it.
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What is the difference between EBITDA and adjusted EBITDA?
EBITDA is earnings before interest, tax, depreciation, and amortisation as reported. Adjusted EBITDA restates that figure for costs that will not continue under new ownership: excess owner pay, personal expenses, and genuine one-offs. Deals price on the adjusted figure.
Can I add back my own salary?
You can add back the excess above what a replacement would cost, not the whole salary. Someone has to run the business after you leave, and buyers deduct a market-rate cost for that role.
How many add-backs are too many?
There is no fixed number, but adjustments above roughly 20-30% of reported EBITDA attract heavy scrutiny. Quality and evidence matter more than count: every item should survive a hostile read.
Do buyers verify add-backs?
Yes. Quality of earnings work in diligence tests every material adjustment against invoices, contracts, and payroll. Undocumented add-backs get struck, and each strike is priced against you at the deal multiple.