Clean Up Balance Sheet Before Sale: EBITDA Adjustments Done Right

EBITDA = Earnings Before Interest, Taxes, Depreciation, Amortization.

English: Operating profit before you pay taxes, interest, and depreciation.

A buyer doesn't look at net profit (profit after taxes). A buyer looks at EBITDA. Why?

Because: Net profit depends on many factors that don't come from the business itself:

• Taxes (Germany's tax system is different from France's)

• Interest (if the old owner had loans)

• Depreciation (an accounting convention, not real money)

A buyer says: "I don't care how much taxes or interest you had. What I want to know is: How much REAL MONEY does this business make OPERATIONALLY?"

That's EBITDA.

Business value is then calculated as EBITDA multiple:

Business value = EBITDA × multiple (normally 5-8x)

So: If your EBITDA is 1 million and the multiple is 6x, your business is worth 6 million.

Therefore: IF YOU CAN INCREASE EBITDA, YOU MASSIVELY INCREASE BUSINESS VALUE.

With VALENTYR VOS Assessment, we show you how to optimize EBITDA.

An add-back is a cost item that you "add back" to EBITDA because it's not "normal" or not "recurring."

Examples:

1. OWNER SALARY ABOVE MARKET

You pay yourself 300,000€ per year. A normal CEO would earn 150,000€. The difference (150,000€) is an add-back.

The logic: A new owner doesn't need to pay 300k salary; he'd fill the position with a manager for 150k.

So: EBITDA + 150k (because this 150k isn't "real" cost).

2. NON-RECURRING COSTS

In 2024, you had a big lawsuit. It cost you 50,000€. The buyer says: "That won't happen again. That's a one-off."

So: EBITDA + 50k.

3. CONSULTING COSTS

You paid an external consultant 80,000€. The buyer probably won't need this consultant.

So: EBITDA + 80k.

4. ADMINISTRATIVE REDUNDANCIES

The buyer has a large back-office. Your HR team (50k/year) can be eliminated.

So: EBITDA + 50k.

This is "normalized EBITDA" – real operating profit after adjustments.

Here's the problem: Not all add-backs are acceptable.

An aggressive seller says: "I pay myself 500k, a normal GM would be 100k. Add-back 400k!"

A buyer says: "That's nonsense. If I did that, my business wouldn't work. Accepted: 50k add-back."

The rule of thumb: A buyer accepts add-backs if they are:

1. DOCUMENTED: You show invoices, receipts, contracts.

2. OBJECTIVE: An independent auditor would agree.

3. NON-RECURRING: The buyer believes these costs don't regularly occur.

4. NOT TOO LARGE: If an add-back is 50% of your EBITDA, no buyer will accept it.

Typically, a buyer accepts:

✓ Owner salary (but only part of it)

✓ One-time consulting costs

✓ Lawsuit costs

✓ Extraordinary events (breakage, fire, COVID)

✗ Chronic inefficiency ("I pay too high rent, please accept an add-back")

✗ Made-up costs

With VALENTYR VOS Assessment, we show you which add-backs are legitimate and which a buyer will reject.

An add-back is a cost item. A normalization is a revenue item.

Example:

Normally you do 10 million revenue per year. But in 2024, you had a big customer who quit at year-end. So: 9.5 million revenue in 2024.

A buyer says: "Good, but what would revenue be if that customer had stayed?"

You say: "10 million."

The buyer says: "Okay, we normalize revenue to 10 million. That's your "normalized revenue."

That's a normalization – you show the buyer what revenue "would have been" without that customer loss.

Other normalizations:

1. SEASONALITY: Your business has strong summer revenue. You show "normalized revenue" based on average.

2. NEW PRODUCTS: You launched a new product in 2024. That would drive more revenue in 2025. You show "normalized revenue" with this new strength.

3. EFFICIENCY IMPROVEMENTS: You introduced new processes that save costs. You show "normalized EBITDA" with these new savings.

Normalizations are a balancing act – you want to show: "The business could be better than current numbers suggest." But not too aggressively, or the buyer won't trust you.

The most common add-back is owner salary – the owner's compensation.

Logic: "The owner pays himself 200,000€. An external manager would cost 100,000€. So: Add-back 100,000€."

But: That's a trap. A buyer will scrutinize this very carefully.

Why?

1. Who gets that money after the sale? The new manager.

2. If the owner paid himself 200k, that means: The business has enough cash for 200k. A new manager at 100k is immediately a +100k gain.

3. But: Is a new manager as effective as the owner? Maybe not. The owner has 20 years experience, the new manager only 5 years.

The realistic assumption:

Owner earns 200k → 50% is "real" business profit, 50% is "owner compensation for his performance."

Add-back: 50% of owner excess = 50k (not 100k).

With VALENTYR, we help you quantify owner adjustments that a buyer accepts.

A "one-off" is an event that doesn't happen regularly.

Examples:

• A big customer goes bankrupt (50k damage) – one-off

• Your CEO has a heart attack, needs 3 months recovery – one-off

• Your warehouse burns down (but is insured) – one-off

• COVID reduced your business 30% in 2020 – one-off

A buyer will normally accept one-offs – as long as they are:

1. DOCUMENTED

2. REALLY one-time (not "every 2 years a situation like this")

3. NOT TOO FREQUENT (if you have 3-5 one-offs every year, no buyer believes it)

The best strategy: Document one-offs transparently. "In 2024, we had these extraordinary costs. Normally they wouldn't happen."

With VALENTYR VOS Assessment, we show you which costs are "really" one-offs and which are just "normal" business costs you're trying to claim as add-backs.

A buyer will question EVERY add-back. That's normal.

Your job: Document them.

Step 1: Create an "adjustments schedule" – a table listing each add-back:

Add-back | Amount | Justification | Documentation

--- | --- | --- | ---

Owner salary excess | 50,000€ | Normal salary: 100k | Payroll, market comparison

One-off legal costs | 30,000€ | One-time lawsuit 2024 | Law firm completion memo

Consulting costs | 20,000€ | One-time strategy consulting | Invoices

TOTAL ADD-BACKS | 100,000€ | | |

Step 2: Document everything with evidence (invoices, contracts, explanations).

Step 3: With VALENTYR VOS Assessment, validate these adjustments against professional standards. That gives your adjustments weight.

Step 4: If a buyer questions an add-back, you have documentation ready.

That's not fraud – that's transparency. Buyers respect clear, documented adjustments.

Step 1 (Now): With VALENTYR VOS Assessment, do a detailed EBITDA analysis. Where can we identify add-backs?

Step 2 (Month 1-2): Document each potential add-back. Collect evidence.

Step 3 (Month 2-4): Reduce real costs (that no buyer accepts as add-back). E.g., high administrative costs.

Step 4 (Month 4-6): Work with an accountant to ensure your adjustments are legitimate.

Step 5 (Month 6+): Present your "normalized EBITDA" to buyers. With VALENTYR documentation, it's convincing.

The result: With smart EBITDA optimization, you often increase business value 10-20%.

At a 5 million business: That's 500,000€ to 1 million€ more value.