Privately held companies are often run to minimize taxes, not to maximize reported profit. That makes the income statement an imperfect picture of what a buyer would actually inherit. Recasting — or normalizing — EBITDA is the process of bridging from reported earnings to true, ongoing economic earning power.
Common, defensible adjustments
- Owner compensation above or below a market-rate replacement salary.
- Discretionary or personal expenses run through the business.
- One-time, non-recurring costs that won’t continue under new ownership.
- Related-party rents or fees adjusted to arm’s-length terms.
The key word is defensible. Aggressive add-backs that can’t be supported in diligence do more harm than good — they erode credibility at exactly the moment trust matters most. A clean, well-documented recast that survives a quality-of-earnings review is worth far more than an optimistic one that falls apart under scrutiny.
Every dollar of credible, recurring EBITDA you can substantiate is multiplied by the deal multiple. That is why presentation, done right, is value creation.
Objective Valuation Group
We work with owners and their accountants well before a process to build a recast that is both complete and credible — and to anticipate the questions a buy-side diligence team will ask.