Don’t Settle for Less Than a Highly Accurate EBITDA

By Michael D. Rubin, CEO & Founder · Updated September 2026 · 759 words

Every dollar of adjusted EBITDA is multiplied into the price, so an error in that one figure costs several times its size, in either direction. Understate it and you leave money on the table; overstate it and the buyer's accountants will cut it in due diligence, usually after you have stopped talking to other buyers.

Adjusted EBITDA means earnings before interest, taxes, depreciation and amortization, restated to remove owner-specific and one-time items. Accuracy means a number built line by line, with evidence, that survives an outside review.

The arithmetic behind the warning

Suppose buyers value your company at four times adjusted EBITDA. A legitimate $75,000 expense that was never added back lowers the price by $300,000. An aggressive $75,000 add-back that a buyer rejects costs the same $300,000, plus some of the buyer's trust in every other number you have given them. These figures are only an illustration. The multiple for your company depends on its size, growth and risk, and in the firm's experience usually falls between three and seven times for companies with $3 million to $100 million in revenue.

The same logic applies to every line of the recast. A few small adjustments that are each missed or each overstated can add up to a gap that decides whether a deal closes at all, because lenders size their loans from the same earnings figure and a lower one can shrink what a buyer is able to borrow.

Adjustments owners commonly miss

Look through recent years for items like these. Old ones matter too: the PPP loan program ended in 2021, and any forgiveness income it created should already be out of the recurring figures.

• Owner pay set to market. If you pay yourself far above or below what a hired general manager would cost, the difference is an adjustment, up or down.
• Genuine one-time events. A lawsuit settlement, a facility move, an insurance recovery, an unusual bad debt, the cost of a failed software rollout.
• Family members on payroll who would not be replaced, or who are paid above market.
• Personal expenses run through the company, such as vehicles, travel and club memberships.
• Rent paid to a property entity the owner controls, restated to market if the buyer will lease the building.
• Growth costs such as hiring a new branch team months before its revenue arrived.

Adjustments that fail in due diligence

Buyers reject add-backs that recur (a lawsuit you face every year is a cost of doing business), that lack documents, or that would have to be spent again under new ownership. A deferred roof repair is not an add-back; it is a bill the buyer will pay. Cash-basis books converted to accrual accounting under generally accepted accounting principles (GAAP) can also shift earnings between years, and a buyer will make that conversion if you have not.

The balance sheet matters too. Smaller companies watch profit and look at the balance sheet once a year. Unreconciled accounts, receivables that will never be collected, inventory carried at old cost and loans to shareholders all raise questions that end in price reductions. Show clearly what conveys with the business and what does not, before a buyer has to ask.

Three steps before you go to market

Three preparations make the biggest difference. Our answer on how add-backs affect the value of a private company walks through the add-back schedule itself in more detail.

• Commission a sell-side Quality of Earnings review, an independent accounting check of your earnings and adjustments, so the buyer's own review confirms rather than discovers.
• Prepare accrual-based statements and be ready to answer GAAP questions from the buyer's accountants.
• Make sure your managers can run the company through the transition, because buyers discount earnings that depend on you.

How MDR & Associates builds the figure

The goal is a figure both sides can check, not the largest figure the numbers could be stretched to show. A recast that anticipates the buyer's questions shortens due diligence and leaves fewer openings for a lower price after the letter of intent is signed.

Every company we take to market has a financial recast: your statements restated to show normalized earnings, with each adjustment explained and supported. It is the base of the marketing package and the number we defend in negotiation. We work through the details with your CPA and, if the books need a year of cleanup first, pre-exit consulting covers it. A formal third-party report is available through our business valuation service. To see where your earnings put you today, request a free valuation snapshot.

Where this fitsBusiness valuation in Texas →

Questions owners ask next

Is a Quality of Earnings report worth paying for before a sale?

Often, yes. A serious buyer will commission one anyway. Having your own first lets you correct problems or explain them before they turn into price cuts. Your CPA and advisor can judge whether the size and complexity of your company justify the cost.

Can I add back my entire salary?

No. A buyer will need someone to do your job. The adjustment is only the difference between what you are paid and what it would cost to hire a capable manager for your role. If you pay yourself less than that, the adjustment lowers EBITDA instead.