The short answer
Keep the original results intact and explain every proposed adjustment with records, a reason and an assessment of ongoing costs. Adjusted EBITDA is a discussion measure; it is not cash flow, a valuation or a guaranteed buyer-accepted figure.
Define the starting measure and period.
BDC describes EBITDA as earnings before interest, taxes, depreciation and amortization, and notes that adjusted versions vary with their purpose. Ask your accountant to establish the starting figure, accounting basis and period, then reconcile it to the financial statements.
Do not mix EBITDA with seller's discretionary earnings, forecasts or cash receipts. State whether the schedule covers the last financial year, a trailing period or a scenario. Show proposed adjustments separately from any change in the underlying accounting records.
BDC — EBITDA and adjusted EBITDA (checked October 20, 2026)Build an adjustment register that can be challenged.
For each proposed item, record the amount and sign, ledger reference, date, supporting invoice or agreement, explanation, likelihood of recurrence and expected replacement expense. Add a review status: proposed, supported, disputed or excluded.
Consider reductions as well as additions. Nonrecurring income, missing management costs or a future premises arrangement may require a downward adjustment. A cost does not disappear merely because it was paid to a family member or related company.
- What exactly was recorded in the chosen period?
- Why would this item differ under continuing ownership?
- What evidence supports that explanation?
- What cost or income replaces it?
- Has any part already been adjusted elsewhere?
Illustration: owner compensation needs a replacement cost.
Illustration only, in CAD: assume reported EBITDA of 1,000,000 already includes 300,000 in owner compensation. If documented replacement management cost is assumed to be 220,000, the proposed adjustment is 80,000, producing 1,080,000 before any other adjustments. Adding back the whole 300,000 would ignore the cost of doing the owner's work.
The replacement cost is an assumption requiring evidence, not a local salary benchmark. Include benefits, payroll costs and all responsibilities to be replaced. A family member who works in the business should be assessed by actual duties and a supportable replacement arrangement, not by relationship alone.
Keep uncertain savings and future growth separate.
A buyer may have its own savings opportunities, but they are not automatically part of the seller's historical earnings. Show future pricing, staffing changes and expansion assumptions in a separate scenario with costs and dependencies.
Test whether a claimed one-off expense has appeared in other years or whether a similar expense is likely to recur. Keep the evidence even where the answer weakens the proposed adjustment. A transparent bridge is more useful than a larger number with no defensible explanation.
Do not substitute EBITDA for cash requirements.
Show equipment replacement, working-capital seasonality, debt service and other cash requirements separately. An earnings bridge cannot tell an owner what will be received at closing or what tax is payable.
Have the accountant and, where appropriate, a qualified valuator review the analysis for its intended use. Buyers and lenders may use different definitions or reject individual adjustments. No multiple, price or financing outcome follows automatically from this worksheet.
General information for people exploring a business transaction. Obtain advice suited to your business before making valuation, tax, legal or transaction decisions.