Normalised EBITDA
Normalised EBITDA is operating profit before interest, tax, depreciation and amortisation, adjusted to show what a buyer would actually earn
EBITDA is earnings before interest, taxes, depreciation and amortisation. Normalised EBITDA adjusts that figure for anything that would not continue under new ownership: one-time expenses or windfalls, above- or below-market owner compensation, personal expenses run through the business, related-party rent that differs from market and revenue or costs that will not repeat.
For BC companies large enough that a buyer will hire a manager rather than run the business personally, normalised EBITDA is the earnings measure buyers, lenders and valuators use. Unlike seller's discretionary earnings, it deducts a market salary for the owner's role, so it is lower, and it is paired with a different range of multiples. Lower mid-market deals between $2M and $10M are almost always discussed on this basis.
Preparing normalised EBITDA is the heart of a valuation and of a sale package. Every adjustment is listed with its reasoning and support, because a buyer's accountant will challenge the ones that look generous. Sellers who present honest, documented normalisations keep their credibility through diligence. Sellers who inflate add-backs usually see the whole earnings figure discounted. Our valuation reports show the unadjusted figure, each normalisation and the result, so the buyer can follow the logic.
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