Glossary

Normalised EBITDA

EBITDA adjusted to remove one-off, non-recurring or non-commercial items, so that it reflects the underlying earnings a buyer could expect the business to produce under normal ownership. Also called adjusted EBITDA.

Written by Motion Advisory Partners. General guidance, not financial advice

In plain English

Reported EBITDA includes things that will not continue after a sale and may exclude things that will. Normalisation adjusts for them. The aim is a figure that answers the buyer's real question: what will this business earn for me?

Common adjustments

  • Founder remuneration. Founders often pay themselves more or less than a market salary. The adjustment replaces actual pay with the cost of replacing them, which can move the figure in either direction.
  • One-off items. Legal costs, a lost project written off, a relocation, redundancy costs or an exceptional bad debt.
  • Non-commercial costs. Personal expenses run through the business, family members on the payroll, or property owned by the founders and charged at a non-market rent.
  • Non-recurring income. A one-off grant, an insurance receipt or a project that will not repeat.
  • Pro forma changes. The full-year effect of a new client won late in the year, or of a cost saving already made.

Why it matters

Normalised EBITDA is the figure an EBITDA multiple is applied to, so each adjustment is worth several times its own value in the price. That is why buyers scrutinise adjustments closely, and why over-aggressive normalisation damages credibility early in a process. Sellers should prepare a clear bridge from reported to normalised EBITDA, with evidence for every line.

Keeping the terms distinct

EBITDA is the reported measure. Normalised EBITDA is the adjusted measure. The EBITDA multiple is the factor applied to the normalised figure to express enterprise value. The three are related but should never be used interchangeably.

Written by Motion Advisory Partners as general guidance.