Normalized EBITDA: How to Clean Up the Accounts Before Setting a Price

If you price your business based on the EBITDA in the accounts, you risk either selling too cheaply or scaring off serious buyers with a number that doesn't hold up on closer inspection. The solution is to normalize the EBITDA before using it as a basis for a valuation.

What does it mean to "normalize" the accounts?

Normalizing means adjusting the accounts' EBITDA for one-off items and factors that don't reflect the business's forward-looking, underlying earning power — regardless of whether the adjustment pushes the number up or down. The goal is to arrive at the figure a new owner can realistically expect to carry forward.

What's typically adjusted for?

• Owner salary: If you, as owner, have taken a salary that doesn't match the market rate for an equivalent position — too high or too low — the EBITDA is adjusted to reflect what an employed director would actually cost going forward.
• One-off income and expenses: A single large order, a one-time grant, a lawsuit, or an extraordinary expense not expected to recur should be adjusted out of the underlying figure.
• Private expenses run through the business: If there are expenses in the accounts that are genuinely private — a car, travel, or other items not necessary for operations — they should be added back to earnings.
• Related-party transactions not at market terms: If you've leased premises from yourself at a price deviating from market rent, or sold to related parties on special terms, this is adjusted to market terms.

Why does this matter so much for the price when selling a business?

Most valuations start from a multiple applied to the EBITDA. If the underlying figure is set too high or too low, the error propagates directly to the whole price — multiplied by the multiple. An error of just a few hundred thousand kroner in the normalized EBITDA can therefore mean a difference of several million kroner in the final price.

Who does the normalizing?

As seller, you should do a first normalization yourself — ideally with your accountant — before setting a price or entering dialogue with a buyer. Be prepared that a buyer will do their own normalization during due diligence, which won't necessarily match yours. The better documented and transparent your own adjustments are from the start, the easier it is to defend them in negotiation.

Can normalization be misused to "dress up" the numbers?

Normalization is about showing an accurate, underlying picture — not about inventing adjustments that artificially inflate the number. Unsubstantiated or undocumented adjustments are typically uncovered during due diligence and damage trust far more than an honest normalization from the start would have.

Frequently asked questions

Why does my own salary need to be adjusted in the normalization?

Because a new owner will need to hire a director at market salary to run the business going forward — if you've taken a salary higher or lower than market rate, it gives a misleading picture of the real, forward-looking earnings.

Can normalization mean my EBITDA ends up lower than it looks in the accounts?

Yes, if for example you've taken an unusually low salary, or had one-off income that won't recur — normalization can adjust the number both ways, not just upward.

Should I normalize the accounts myself, or is that the buyer's job?

Both happen in practice — you should do your own normalization as a basis for your price expectation, while the buyer does their own during due diligence. The better documented your version is, the stronger your negotiating position.

Want a realistic picture of your normalized EBITDA? Use our free valuation tool, or read the full walkthrough of how to calculate a business's value.