ARTICLE

Case Study: Identifying $4.1M in EBITDA Adjustments Ahead of a Sale

by: Smith and Howard

October 18, 2026

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Preparing a business for sale requires a clear understanding of its underlying financial performance. For a lower-middle-market HVAC services company, significant personal expenses recorded through the business were distorting reported earnings and making it difficult to present an accurate picture of profitability. The company engaged Smith + Howard for a sell-side Quality of Earnings (QoE) analysis to identify and substantiate adjustments that would provide prospective buyers with a clearer view of the business.

The Challenge

Significant owner-related personal expenses were obscuring the company’s underlying earnings ahead of a potential sale.

The HVAC services business recorded approximately $2 million to $3 million in owner personal expenses annually. These costs were included in the company’s general ledger and materially affected its unadjusted financial results.

For prospective buyers evaluating the business, reported earnings alone would not fully reflect the company’s financial performance after accounting for these owner-related expenses.

The company needed to identify the relevant transactions, calculate appropriate EBITDA adjustments and retain documentation to support those adjustments through the sell-side diligence process.

Our Approach

Smith + Howard developed a dedicated diligence workstream to identify, quantify and substantiate owner-related EBITDA adjustments.

As part of the sell-side Quality of Earnings engagement, the team established a targeted workstream focused on personal expenses recorded within the company’s general ledger.

The analysis involved identifying owner personal spending throughout the general ledger and determining the related adjustments necessary to present a clearer view of underlying EBITDA.

Smith + Howard also retained supporting documentation for the identified expenses and adjustments, creating an evidentiary foundation for the company’s adjusted financial presentation.

This focused approach allowed the team to isolate the impact of owner-related spending while maintaining support for the adjustments identified during diligence.

Results Delivered

The sell-side Quality of Earnings analysis identified a $4.1 million EBITDA adjustment in the trailing-twelve-month period from owner-related personal expenses alone.

  • Identified $4.1 million in EBITDA adjustments for the trailing-twelve-month period through a single management adjustment related to owner personal expenses.
  • Analyzed approximately $2 million to $3 million in annual owner personal spending that had distorted the company’s unadjusted financial results.
  • Established a dedicated diligence workstream to identify relevant transactions within the company’s general ledger.
  • Documented and substantiated the identified adjustments to support the company’s sell-side Quality of Earnings analysis.
  • Separated the owner-related management adjustment from other diligence adjustments, providing greater clarity into the components of adjusted EBITDA.

The Takeaway

Reported earnings do not always tell the full story of a company’s underlying financial performance.

For owner-operated businesses preparing for a sale, identifying and documenting nonbusiness expenses can be an important component of sell-side readiness. A thorough Quality of Earnings analysis helps distinguish recurring operating performance from owner-related costs, giving sellers a more defensible financial presentation and buyers greater visibility into the earnings they are evaluating.

How can we help?

If you have any questions and would like to connect with a team member please call 404-874-6244 or contact an advisor below.

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