When you look at acquiring a business, the first number people throw at you is EBITDA. It’s supposed to tell you how profitable the company is. But EBITDA is sort of like a blurry photo, in that it gives you a shape but not the details. That’s why we have to adjust it. We bring into focus exactly what you need to see to know what’s going on with a business. Adjusted EBITDA takes the standard formula (Earnings Before Interest, Taxes, Depreciation, and Amortization) and then cleans it up. You strip out the weird stuff: one-time costs, owner perks, non-operating income, etc. What you’re left with is a clearer picture of what the business actually earns. In other words, you have a much better understanding of what the company is worth. Let’s See Paul Allen’s EBITDA Businesses love to brag about their EBITDA. While it’s obviously an important metric, there’s a lot that can be hidden when it’s unadjusted EBITDA. A lawsuit settlement here, a founder’s car lease there. And yes, this still applies to coveted world of essential services. Even though these affect the final EBITDA number, none of these things these tell you how the business really runs. There are three big reasons this matters: It shows the core. You see what the business makes from just… being a business. It makes comparisons fair. One company might use debt differently or load up on tax tricks. Adjusted EBITDA levels the field enough to make more accurate multiples based on the sector. It figures out the cash flow. Cash is what pays the bills. Adjusted EBITDA gets you closer to seeing how much actually sticks. What Gets Adjusted In our experience, there are several different types of adjustments. First off, you’ve got one-time hits to EBITDA. These include events like legal costs or restructurings. Next, you have non-operating noise: things like asset sales or investment income that show up on the books but don’t say anything about how the business actually runs. Then there’s owner stuff: a shaky SBA loan, personal expenses, or perks that wouldn’t continue under new ownership. And finally, you get the truly odd events like hurricanes, pandemics, or anything that distorts earnings in extreme and unexpected ways. Together, these categories strip the noise out of EBITDA and get you closer to the company’s real earning power. Who Cares? Everybody involved in an M&A transaction cares about what’s going on, but they all have different reasons. Buyers care because they don’t want to pay for inflated numbers that won’t stick around after closing. Sellers care too, since adjusted EBITDA is their chance to show an accurate valuation of the business without the distractions of one-off hits or personal spending. And investors care because they need a good understanding of their expected ROI. Thanks to adjusted EBITDA, everyone can look at the same thing during the deal: what the business really makes. How Does Adjusted EBITDA Plug Into a QoE? A Quality of Earnings report is where the adjustments get tested. It’s not enough to just cross out a line item and say “trust me.” Every adjustment has to tie back to real documents. Done right, QoE turns adjusted EBITDA from a marketing number into something buyers and investors can actually believe. Adjusted EBITDA tells a story that’s much closer to the truth you need to make your decisions. Go to our website today to get a free quote on your QoE.