Adjusted EBITDA is EBITDA with one-off, non-recurring, and non-business items added back or removed to produce a figure intended to represent the sustainable operating earnings of the business. Common add-backs include owner remuneration above market rates, owner-related personal expenses run through the business, one-off legal or restructuring costs, and one-off insurance recoveries or losses.
Buyers and their advisors scrutinise add-backs heavily. A defensible add-back is documented, recurring in pattern, and clearly non-business in nature; an undefensible one is removed by the buyer in their valuation.