Step 3 - Create a 'recast' by documenting all of these items on a spreadsheet with operating profit at the top and the list of add- backs/take-backs below . The sum of this is Normalised EBITDA for that fiscal period. Step 2 - Get the previous 2-3 years' fiscal reports and repeat the process - This will start to give us an idea of growth and consistency. Step 3 - Get the management accounts since the last fiscal year's accounts were prepared by the accountant. If this is more than 12 months, then we will want to 12 months since the last fiscal report taking us to the end of the most recent fiscal year + a separate report for the months since the fiscal year-end. We must keep in mind that these may or may not be accurate. There can be significant differences, especially for businesses like construction or that are inventory intensive and require stock/WIP adjustments at the year- end for example. So the idea is to get as much data as possible. Step 4 - Repeat the recast process with the management accounts . - This may/may not be possible in a way that is accurate but the more data we have, the more patterns start to emerge and it allows us to take a view. Usually, the accountants will do a deeper dive in due diligence to come up with more accurate numbers which is why we tend to favour a Heads of Terms process that specifies formulas and not hard numbers recognising the calculation of Normalised EBITDA based on management accounts at early stages can be difficult. We will now have a recast with the last 3 fiscal years filed accounts as well as current management accounts. There are many nuances and exceptions which we can help you with but this is the basic process. Once we have all of this data on a single spreadsheet, we can take a view and start to get an idea about what the profit streams of the business are.
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