"The gap between the EBITDA a founder believes in and the EBITDA a buyer will actually underwrite is not simply a financial discrepancy. It is a credibility problem, a trust problem, and ultimately a multiple problem. Understanding how that gap forms, why it quietly widens over years of owner-operator decisions, and how to close it before a deal process begins is one of the most strategically valuable things a business owner can do in the years preceding an exit."
"Most private business owners arrive at their EBITDA figure through a combination of internal management accounts, year-end tax filings, and a set of verbal adjustments they carry in their heads like trusted companions. The legal dispute from three years ago. The daughter who was on salary during university and has since moved on. The company-paid memberships that are genuinely optional and personal in nature. Each of these adjustments may be entirely legitimate in isolation."
Private business owners frequently calculate EBITDA using internal accounts, tax filings, and mental adjustments for items like personal vehicle expenses, above-market management fees, and family member salaries. While individually legitimate, these adjustments accumulate into a significant gap between owner-believed EBITDA and buyer-underwritten EBITDA. This discrepancy represents more than a financial issue—it becomes a credibility and trust problem that directly impacts valuation multiples. Sophisticated buyers identify these adjustments during diligence, and the gap widens silently over years of owner-operator decisions. Understanding how this gap forms and closing it before a formal sale process begins is strategically critical for business owners planning an exit.
Read at Business Matters
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