The financial story must reconcile
Buyers trust adjustments only when the records support them.
The historical financial section of a confidential information memorandum (CIM) is where the marketing narrative meets the accounting record. Buyers will expect revenue, gross profit, operating expenses, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to reconcile to the company’s financial statements and, ultimately, to source records.
A useful presentation normally shows several comparable periods and explains material changes. If margins improved, what changed in price, mix, labor, purchasing, or utilization? If a year was unusually weak, was the cause temporary, and what evidence shows that performance recovered? Variance explanations should describe business drivers, not merely restate the numbers.
Adjusted EBITDA requires particular discipline. Potential transaction adjustments may include substantiated owner-specific expenses, truly nonrecurring professional or litigation costs, and measurable run-rate effects of actions already implemented; buyer acceptance will depend on the facts and supporting evidence. Each item should be clearly defined, quantified, and supported. An expense does not become an adjustment simply because management hopes it will not recur.
Buyers will also test whether proposed adjustments require replacement costs. For example, removing an owner’s compensation without adding the cost of a replacement executive can overstate earnings. The same issue arises with below-market rent, deferred maintenance, or underinvestment in finance and technology.
A credible bridge from reported results to adjusted EBITDA reduces ambiguity and allows buyers to focus on valuation and risk. An aggressive bridge may raise the headline figure, but it can invite a later retrade if diligence cannot substantiate it.