ADJUSTED EBITDA: WHAT A BUYER ACCEPTS.
A buyer prices a construction company on adjusted EBITDA, not on the profit on the tax return. The adjustments fall into six groups: interest and depreciation, owner pay set to a market wage, personal expenses paid by the company, one-time costs, related-party rent set to market, and work in progress corrected for over and under billing. Each adjustment needs a document behind it. An adjustment with an invoice or a contract is accepted, and one without is removed. At a 3 times multiple, every $10,000 removed takes $30,000 off the price.
Reported profit is the number a tax return needs, and adjusted EBITDA is the number a buyer needs. The two differ by every item the owner can document, and the difference is multiplied by the valuation multiple. This page lists the six groups and works one example. The multiples are on the EBITDA multiples page.
WHAT IT MEANS.
Adjusted EBITDA is a company's earnings before interest, taxes, depreciation and amortization, corrected for items that do not repeat or that a new owner would change, so it shows the profit a buyer can expect.
This page explains how adjustments are built and documented. It does not value any company. The multiple a buyer applies depends on the business, and the EBITDA multiples page gives the range this site uses, 2 to 4 times for commercial subcontractors.
WHAT GETS ADJUSTED.
Interest, depreciation and amortization
These are added back by definition, because EBITDA excludes them. Buyers still ask what equipment will need replacing, because depreciation is a cost that returns as a purchase. A company with old equipment can be asked to accept a lower number for it.
Owner pay set to a market wage
The owner's pay is replaced with what a hired manager would cost. If the owner is paid $300,000 and a general manager would cost $180,000, the add-back is $120,000. If the owner is paid $90,000 and does the work of a $180,000 manager, the adjustment is minus $90,000. A buyer corrects in both directions.
Personal and family expenses
Vehicles, phones, insurance, travel and family members on payroll who do no work for the company are removed from expenses. A buyer accepts an add-back it can trace to a bill and rejects one it has to take on trust.
One-time costs
A legal settlement, a failed software change or a move can be added back once. A cost that repeats three years in a row is not one-time, and buyers treat it as a cost of doing business.
Related-party rent set to market
When the company rents a building from the owner's other entity, the rent is reset to market. Rent above market is added back. Rent below market is subtracted, because the new owner will pay market rent.
Work in progress corrected
Construction earnings depend on the work in progress schedule. A buyer's accountant rebuilds it and corrects underbilling, unapproved change orders counted as revenue, jobs that have faded since the last report and retainage that may not be collected. Profit that came from timing and not from completed work comes out of EBITDA.
WHAT IT LOOKS LIKE IN DOLLARS.
A $6M contractor reports pre-tax income of $240,000. Add interest of $20,000 and depreciation of $110,000, and EBITDA is $370,000. Add owner pay above market, $120,000. Add a one-time legal settlement, $30,000. Add personal vehicles and insurance paid by the company, $25,000. Subtract rent paid to the owner's building at below market, $18,000. Subtract an underbilling correction found in the work in progress schedule, $60,000. Adjusted EBITDA is $467,000.
At the 2 to 4 times range, $467,000 is $934,000 at 2 times, $1,401,000 at 3 times and $1,868,000 at 4 times. Without the adjustments, $370,000 is $740,000, $1,110,000 and $1,480,000. The documentation behind the $97,000 of net adjustments is worth $194,000 to $388,000 of price.
At 3 times, an add-back of $10,000 is worth $30,000 of price. A buyer that removes $40,000 of add-backs for missing documents takes $120,000 off the offer.
WHAT WE CHANGE.
SPM keeps the list of adjustments in the monthly close, with the invoice or contract attached to each line, so it is not rebuilt in a hurry when a sale starts.
The site's valuation pages put the useful runway at 2 to 3 years. An owner wage that is already at market in the financial statements needs no explanation in the sale.
Personal expenses are paid from personal accounts or reimbursed and recorded as owner draws. Every personal item removed from expenses is one fewer add-back to defend.
A monthly work in progress schedule finds underbilling when it is small. A buyer's accountant then has less to correct, and the earnings in the offer match the earnings in the books.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing. No payroll. The one-time onboarding fee is right here in the table.
| Last 12 months revenue | Monthly fee | One-time onboarding |
|---|---|---|
| Up to $1M | $1,900 to $2,900 | $1,000 |
| $1M to $3.5M | $2,600 to $3,900 | $1,500 |
| $3.5M to $6.5M | $3,800 to $5,700 | $3,000 |
| $6.5M to $9.5M | $5,100 to $7,100 | $4,500 |
| $9.5M to $12.5M | $6,100 to $8,500 | $6,000 |
| $12.5M to $15.5M | $7,400 to $11,000 | $7,500 |
| $15.5M to $18.5M | $9,400 to $13,500 | $9,000 |
| $18.5M+ | Quoted individually | Quoted individually |
The onboarding fee covers migrating your books back to the start of your last taxable year and getting you fully operational in 60 days. It's billed once, with your first invoice. It's the same for all three tiers. Your first month is prorated, and your monthly engagement starts on the first of the first full month.
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items. The onboarding fee is right here in the table.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions and never in a report.
Your bookkeeper still does the books.
You stop touching the books.
Everything in Core, and we do the bookkeeping and the controllership as well. Your office stops answering coding questions and stops fixing a reconciliation that will not balance on the last day of the month.
We do the books. No payroll.
Every job shows its margin while it is still open.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the books, the job costing, and the software. No payroll.
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