Test EBITDA add backs against work the MSP still needs. EBITDA means earnings before interest, taxes, depreciation, and amortization. Assume the model's US example, where annual earnings of $730,276 already include fair-market owner pay. Add the owner's $271,200 cost back and the total becomes $1,001,476, while the job remains unfilled.
The sum is correct. The earnings claim isn't. An add-back removes an expense from the calculation; a defensible proposal needs evidence that explains why the earnings should change. I'd present an adjustment schedule a buyer can inspect line by line, with continuing costs shown beside the proposed saving.
Establish the Starting Amount Before Adjusting It
Give your accountant the financial statements for the period you intend to present. Ask them to reconcile the starting EBITDA and identify the entries already excluded in reaching it. Keep that reconciliation beside your proposed adjustments so a cost doesn't disappear twice.
Adjusted EBITDA is the result after the proposed changes to that starting figure. Label the period and make the direction of every change explicit. A reduction needs the same supporting work as an increase.
My calculation would read: starting EBITDA plus supported increases, less supported reductions, equals proposed adjusted EBITDA. Keep disputed lines visible rather than burying them in the total. If an assumption changes, the reader should be able to remove that line and recalculate without rebuilding your accounts.
Don't describe your proposal as an agreed buyer figure. Ask your transaction accountant to check the treatment and record the buyer's response when you have it. A category called one-off costs doesn't settle what belongs in it.
Keep the Owner Job in the Calculation
The model requires profit after a fair-market owner salary. Fair-market pay is the cost of the management job the business needs, regardless of who holds it. Your departure doesn't remove that work.
For the US example in the model's $2 million to $4 million revenue band, the owner salary is $240,000. Apply its owner-specific burden multiplier of 1.13: $240,000 x 1.13 = $271,200 in annual cost. The lower multiplier reflects the Social Security cap and fixed health costs, not the disappearance of employment costs.
The example's $730,276 of EBITDA already pays that owner cost. The rejected calculation is $730,276 + $271,200 = $1,001,476. It counts the management work as free, so the supported example stays at $730,276 before any other justified adjustment.
That inflated total also passes the model's $1 million institutional-buyer size reference. Passing a planning threshold by deleting a necessary job doesn't establish better earnings. A rule of thumb can't fill the vacancy.
For your business, document the duties behind the actual compensation before proposing a change. Compare what you currently expense with the cost of the work that continues. If the owner also performs technical work, B9 requires that time to count as direct labor at fair-market pay.
Keep reclassification separate from extra capacity. Moving existing compensation into delivery labor changes the service margin; adding genuinely uncovered replacement work changes total earnings. Don't subtract a replacement for work you've already paid for elsewhere in the calculation.
Show Why a Personal Expense Would Stop
For spending you propose to remove as personal, identify the actual transaction. Explain the business purpose, if any, and what the MSP would need to buy instead. Put mixed-purpose spending into a review line until you can support the split.
I'd show the original expense less the continuing business cost as the proposed increase to EBITDA. Both amounts need evidence. If you can't establish the business-use portion, leave the amount unresolved rather than calling the entire payment optional.
Give the accountant the underlying record and your explanation together. A card statement can show that the payment happened; it doesn't establish that the business can stop spending the money. Don't rename a continuing client or employee cost as personal merely because you chose the supplier yourself.
Test Exceptional Costs Against What Happens Next
For an expense you describe as exceptional, show what caused it and whether that work has ended. Check the surrounding records for similar spending under another account name. My view is that irregular spending still deserves examination before you treat it as something the business won't need again.
I'd use this schedule to make each proposal specific. The proposed treatment stays open for review until the supporting work and transaction discussions establish what figure to use.
| Proposed Adjustment | What I Would Bring to Review | What Could Change the Amount |
|---|---|---|
| Owner Compensation | The payroll entry and a description of the work that must continue. | The actual cost of the ongoing duties. |
| Personal Spending | The specific transaction with its business-use explanation. | A continuing business purpose or replacement expense. |
| Exceptional Professional Fee | The engagement and invoice, with evidence the work has ended. | Related work that continues or similar costs elsewhere. |
| Staff Departure Cost | The payment record and the plan for covering the role. | Replacement capacity and continuing commitments. |
| Exceptional Income | The recorded receipt and the reason it differs from ongoing trading. | An offsetting expense or a misunderstanding of the event. |
| Planned Operating Saving | The separate proposal and the work needed to implement it. | Execution costs and commitments that have not ended. |
For a staff departure, trace the work after the person leaves. Ask the service manager what capacity is still needed and check the cost of covering it. I'd reject a saving in my own schedule if it simply moves the same work onto the owner without paying for it.
Check income items with the same care as expenses. If you propose removing an exceptional expense, look for a related receipt before calculating the net effect. Keep the entries linked so the person reviewing the schedule can see your reasoning.
Put Future Improvements in a Separate Case
A planned tool cancellation belongs in a forward-looking case until you can show what has actually changed. Record the contract commitment and any replacement cost. Have the technical lead identify the migration work before describing the intended saving.
Keep that case separate from the historical schedule. The buyer should be able to reject your future plan and still follow the earnings you reported for the period. Use the same approach for proposed price increases rather than treating an intended change as revenue already earned.
Don't let the earnings calculation replace the cash plan. Keep required equipment investment visible for the transaction discussion, even where its accounting treatment differs from an operating expense. Ask your accountant to reconcile those requirements separately instead of making EBITDA carry every meaning of profit and cash.
Make the Review Reproducible
Give every proposed adjustment a reference that leads back to its accounting entry. Save the supporting document and the calculation against that reference. Record whether the line is proposed or agreed, with any objection beside it.
Use the owner's pay calculation as the first check on your method. The inputs are visible, the arithmetic can be repeated, and the continuing job explains why the proposed increase fails. That is more useful to a buyer's review than an assurance that the business has plenty of add-backs.
Start with the largest proposed line and have your accountant trace it to the records. Resolve what continuing expense remains before rolling the adjustment into the total. Then repeat the same check until the sum can be rebuilt from the evidence rather than from your confidence in the sale price.
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Written by Graham Whitfield
MSP Outpost publishes information, not legal, financial, insurance, tax or compliance advice, and reading it creates no professional relationship. For decisions about your business, talk to a qualified professional.