| Line Item | Year −2 | Year −1 | LTM / Most Recent |
|---|---|---|---|
| Revenue | |||
| Stated Net Income (after tax) |
Enter figures from your P&L or tax returns. Use your most recent 12-month period as "LTM." Year −1 and Year −2 provide the trend buyers will examine.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is the starting point for M&A valuation because it approximates operating cash flow before financing and accounting decisions. If your CPA has already given you an EBITDA figure, enter it directly in Section 3 and skip this section.
| Add-Back | LTM Amount |
|---|---|
| Interest Expense Net interest paid on business debt (from P&L or Schedule C) | |
| Income Tax Expense State and federal income taxes shown on P&L (not payroll taxes) | |
| Depreciation From your depreciation schedule or tax return (Form 4562) | |
| Amortization Amortization of intangibles, customer lists, non-competes, etc. | |
| Stated EBITDA (Net Income + ITDA add-backs) | — |
Or enter your EBITDA directly if known:
If you enter a value here, it replaces the Net Income + ITDA calculation above as the starting point for normalization add-backs. Leave blank to use the calculated figure.
The most significant and most commonly misunderstood normalization adjustment. Buyers add back the difference between what you actually pay yourself and what a market-rate replacement CEO/GM would cost. If you underpay yourself, there may be no add-back — or even a negative adjustment.
| Family / Related-Party Employee Compensation Add-Backs | Add-Back Amount |
|---|---|
| Family Member #1 on Payroll Enter the amount by which their actual compensation exceeds what you'd pay an unrelated employee in that role. If at market rate, enter $0. | |
| Family Member #2 on Payroll Same methodology — above-market compensation amount only. |
Expenses that benefit you personally but are recorded as business expenses. These are legitimate add-backs — but be honest. Buyers' Quality of Earnings teams will scrutinize these line items carefully. Only include expenses that would not continue under a new owner.
| Personal Expense Category | Annual Amount |
|---|---|
| Personal Vehicle Auto lease payments, depreciation on owner's personal vehicle, fuel, insurance — amounts attributable to personal use | |
| Owner Health, Life & Disability Insurance Premiums paid by the business for owner's personal insurance policies (not employee group health plan) | |
| Personal Travel & Entertainment Vacations, personal meals, sporting events, entertainment charged to the business that are not genuinely business-development related | |
| Club Memberships & Dues Country club, golf club, professional associations the owner would personally retain. Include the full amount if non-business-essential. | |
| Personal Cell Phone & Devices Personal mobile plans, tablets, home tech equipment paid through the business | |
| Home Office / Personal Real Estate Expenses Utilities, internet, or home expenses allocated to the business beyond a legitimate pro-rata office use allocation | |
| Other Personal Expenses Any other personal expenses not captured above — charitable contributions, personal subscriptions, non-business gifts | |
| Subtotal — Personal Expenses | — |
Expenses that hit the P&L in the period but are genuinely non-recurring — they would not occur in a normalized year of operations. Buyers are skeptical of this category and will probe each item. Document every add-back with invoices or clear explanations.
One-time add-backs are the most frequently challenged category in a Quality of Earnings. Buyers and their QoE advisors will ask for backup documentation on every item. Avoid overstating this category — overly aggressive one-time add-backs destroy credibility at exactly the wrong moment in a process.
| One-Time Item | Amount |
|---|---|
| Legal Fees — Non-Recurring Litigation or Transactions Attorney fees for a one-time dispute, settlement, or corporate restructuring. Ongoing legal expenses are NOT addable. | |
| Severance & Restructuring Costs One-time severance payments, workforce restructuring, or plant/office closures not expected to recur | |
| Lease Termination / Relocation Expenses Penalties, moving costs, or write-offs associated with a specific lease termination or office relocation | |
| Non-Recurring Consulting / Advisory Fees Special project consultants, one-time advisory engagements, or M&A preparation costs not part of normal operations | |
| Capital Expenditures Expensed (not capitalized) Equipment or improvements that were immediately expensed under Section 179 or bonus depreciation rather than capitalized. Add back if truly non-recurring infrastructure investment. | |
| COVID / Pandemic-Related One-Time Costs PPE purchases, sanitation, temporary facility changes. Note: PPP loan forgiveness income should be excluded from revenue, not added back here. | |
| Litigation Settlement / Damages Paid One-time settlement payment or damages award. Only add back if clearly non-recurring and fully resolved. | |
| Other One-Time Items Any other non-recurring expense with clear documentation and rationale | |
| Subtotal — One-Time Items | — |
If the business leases space from an entity you own, or transacts with vendors where you have a personal relationship, buyers will normalize these to market rates. This can be an add-back or an expense increase, depending on whether you charge above or below market.
| Other Related-Party Adjustments | Adjustment Amount |
|---|---|
| Related-Party Vendor Pricing (Above Market) If you purchase from a vendor where you or a family member has an ownership interest, and the pricing is above market, buyers will normalize this downward. Enter the above-market premium as a positive number. | |
| Pro-Forma: New Contracts / Revenue Not in Full-Year Run Rate Revenue from contracts signed mid-year that will contribute full-year in the forward period. Buyers will heavily scrutinize — include only if signed, not projected. | |
| Pro-Forma: Eliminated Expenses (Confirmed) Expenses that have already been eliminated (role eliminated, contract terminated) but were in the LTM period. Must be already actioned — not planned. | |
| Other Adjustments Any other normalization adjustment not captured above | |
| Subtotal — Related-Party & Other Adjustments | — |
This table shows the full walk from your stated financials to normalized EBITDA — the number a buyer's deal team will start with when building their valuation model.
| Stated Net Income (LTM) | — |
| + Interest Expense | — |
| + Income Tax Expense | — |
| + Depreciation & Amortization | — |
| = Stated EBITDA | — |
| + Owner Compensation Add-Back (net of replacement cost) | — |
| + Personal Expenses | — |
| + One-Time & Non-Recurring Items | — |
| + Related-Party & Other Adjustments | — |
| = Normalized EBITDA | — |
| Total Add-Backs | — |
| Add-Backs as % of Stated EBITDA | — |
| EBITDA Margin (Normalized / Revenue) | — |
A buyer's Quality of Earnings advisor will conduct their own analysis of your add-backs. Items with clean documentation — invoices, payroll records, tax returns — survive scrutiny. Items without backup tend to be partially or fully disallowed. The goal of this worksheet is to help you identify and document your add-backs before a buyer's team does it for you — when you have less leverage to defend them.
EBITDA multiples vary significantly by industry, size, growth rate, and business-specific risk factors. The ranges below reflect lower middle market transactions ($2M–$15M EBITDA). Your specific multiple will depend on revenue quality, customer concentration, owner dependency, and growth trajectory.
| Industry | Typical Multiple Range (LMM) | Key Multiple Drivers | Select |
|---|---|---|---|
| SaaS / Software | 6x – 11x | ARR quality, churn rate, NRR, growth rate | |
| IT Services / MSP | 5x – 9x | MRR vs. project revenue mix, customer tenure, technician depth | |
| Health Tech / Digital Health | 6x – 12x | Regulatory positioning, payer relationships, clinical validation | |
| Manufacturing / Industrial | 4x – 7x | Proprietary product vs. contract, customer concentration, capex needs | |
| Distribution / Wholesale | 3.5x – 6.5x | Exclusive supplier relationships, private label mix, margin profile | |
| Business Services | 4x – 8x | Recurring vs. transactional revenue, contract length, owner dependency | |
| Healthcare Services | 5x – 10x | Payer mix, licensure, census/volume trends, compliance posture | |
| Specialty Contracting | 3x – 6x | Backlog, license portability, key person risk, bonding capacity | |
| Solar EPC / Clean Energy | 4x – 8x | Pipeline visibility, ITC/IRA exposure, project type mix, crew depth | |
| Other / General Business | 3.5x – 7x | Varies widely by business model, customer mix, and growth profile |
The difference between the Low and High estimates is almost always larger than owners expect — often $1M–$5M or more on a typical lower middle market business. That gap is not random. It is determined by specific, addressable factors: revenue quality, customer concentration, owner dependency, growth trajectory, and financial documentation. These are precisely the gaps Horizon identifies in a pre-market preparation engagement — before a buyer's team finds them in diligence.
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