Glossary
Adjusted EBITDA
EBITDA after the corrections: real owner wages in, genuine one-offs out, related-party deals repriced to market. The number deals should be priced on.
In plain English
Adjusted EBITDA, sometimes called normalised or underlying earnings, is EBITDA corrected to show what the business would earn for an arm's-length owner. A market wage for the work the owner actually does goes in. Genuine one-off costs come out. Rent paid to the owner's own trust gets repriced to market. Personal spending running through the business comes out.
Every adjustment needs evidence: the receipt, the lodgement, the ledger entry. An adjustment without a document behind it is an opinion, and opinions get discounted to zero inside a credit team.
Why a lender cares
The adjusted EBITDA bridge, the walk from reported profit to the claimed figure, is the most scrutinised page in any acquisition file. Assessors rebuild it themselves and discount every unevidenced line. When our name is on the bridge, every line has a source document behind it, which is why the number survives contact with credit.
Worked example
Reported EBITDA $400,000. Add back the departing owner's above-market salary sacrifice, deduct a market manager's wage, remove a one-off legal settlement with the invoice attached, reprice the family-trust rent to the market rate: adjusted EBITDA $310,000. That is the number the debt gets tested against.
Where this term takes you
Reading up because a deal or a facility is on the table? One call with Nicholas gets you a straight read on your numbers, free.
Book a call