Owner compensation and related parties
Owner salaries, family members on payroll, and rent paid to an owner-held entity are adjusted to market rates. The adjustment can go either way.
Non-recurring items
Legal settlements, one-time consulting projects, and gains or losses on asset sales are typically removed, but buyers will push back on costs that keep coming back every year under a different label.
Revenue quality
Cut-off errors, customer concentration, pricing changes, and backlog or contract renewals all affect whether historical revenue is a reliable base for forecasting.
Accounting policy and accruals
Cash-basis books converted to accrual, missing accruals for bonuses or vacation, and revenue recognized ahead of performance are common findings.
Working capital and debt-like items
A normalized working capital peg and items such as deferred revenue, customer deposits, accrued taxes and deferred compensation often affect the purchase price as much as EBITDA does.
Sellers who commission a sell-side QoE before going to market usually see fewer surprises and shorter diligence.
This article is general information, not advice for your situation. Contact us to discuss your facts.
Related service: Mergers & Acquisitions