EBITDA Bridge Builder
Start with reported EBITDA and add/subtract adjustments to model Adjusted EBITDA for valuation.
Your reported EBITDA is what appears on your financial statements. But buyers don't value you on reported EBITDA alone. They value you on adjusted EBITDA, which strips out one-time costs and owner-specific expenses to reveal normalized earnings. The difference between reported and adjusted EBITDA can mean millions in deal value.
An EBITDA bridge is the document that takes buyers from your reported numbers to an adjusted baseline they can apply standard multiples to. Building a defensible bridge requires identifying the right adjustments and presenting them credibly so buyers accept them as legitimate add-backs rather than accounting games.
Reported EBITDA
Adjustments
Multiples & Valuation
| Multiple | Enterprise Value |
|---|
How to Read Your EBITDA Bridge
The bridge starts with reported EBITDA from your audited or reviewed financials. It then lists each adjustment with the amount added or subtracted. Common add-backs appear at the top, then subtractions. The bridge concludes with adjusted EBITDA, which is the number buyers use for valuation.
The confidence weighting column tells you how much of each adjustment you can realistically defend. High confidence adjustments get 100% weight because they're obvious (like one-time severance). Medium confidence adjustments get 70% weight because they're defensible but less clear-cut (like owner salary above market). Low confidence adjustments get 40% weight because buyers might challenge them.
Common Add-Backs and When to Use Them
Owner compensation above market is the most common add-back. If you pay yourself $500K but a hired CEO would cost $200K, you can add back $300K. Be prepared to document comparable salaries in your industry and region.
Non-recurring expenses are one-time costs that won't recur under new ownership. Examples include facility relocations, severance for departing employees, litigation settlements, and integration costs from prior acquisitions. These are high confidence because they're clearly non-recurring.
Related party transactions at above-market rates are add-backs if you rent space from a related party at inflated rates or purchase supplies from related entities. The bridge should show the add-back amount and a comparable market rate.
Founder-specific costs like the founder's excessive travel, personal expenses, or family salaries are add-backs if they won't continue under new ownership. Similarly, if you have duplicate functions that will be consolidated, that savings should appear as an adjustment.
Stock-based compensation that won't continue is frequently added back, particularly options that vest post-closing since the buyer won't be issuing additional equity.
Common Mistakes
Adding back items that will continue post-close
The biggest bridge mistake is adding back costs that the new owner will incur. If your CFO will stay post-close, you can't add back her salary. If related party rent continues under the same terms, you can't add it back. Buyers are sophisticated and will challenge anything that doesn't clearly terminate.
Being too aggressive with adjustments
The goal isn't to maximize adjustments but to present realistic numbers. An aggressive bridge that buyers don't believe in will destroy negotiating credibility. It's better to be conservative and have buyers accept your bridge than to claim too much and lose the deal over trust.
Forgetting to document adjustments
Every add-back needs backup documentation. Vendor invoices for one-time expenses, executive compensation surveys for market rate comparisons, and related party contracts showing above-market terms are essential. Without documentation, adjustments become unsupported claims.
Missing obvious add-backs
Some founders don't add back significant items because they seem normal. But if it's founder-specific or non-recurring, it belongs in the bridge. Be comprehensive and let buyers see the full picture of adjustments.
Mixing GAAP and non-GAAP adjustments
Be clear about the starting point. Are you adjusting from GAAP net income or reported EBITDA? Different starting points require different adjustments. Most buyers prefer to start from audited EBITDA and work from there for credibility.