Pro Forma Adjustments
Also known as: Normalizing Adjustments, Run-Rate Adjustments, Normalizations
Pro forma adjustments restate historical results to reflect the business as it will operate going forward, covering run-rate changes, acquisitions, and other standard normalizations.
Pro forma adjustments restate a company’s reported financials to show what the business looks like on a normalized, forward-looking basis. Where EBITDA add-backs focus on owner-specific and one-time items, pro forma adjustments more broadly capture anything that makes the historical numbers unrepresentative of the go-forward business.
Standard adjustments buyers expect to see
- Run-rate adjustments. Annualizing the impact of a price increase, a new hire, or a contract that started partway through the year.
- Acquisitions and divestitures. Showing a full period as if a bolt-on acquisition had been owned all year, or removing a divested line.
- One-time and non-recurring items. Legal settlements, restructuring costs, or a one-off project that will not repeat.
- Owner and related-party items. Above-market compensation, personal expenses, and below-market rent.
- Accounting normalizations. Conforming inconsistent policies or correcting cut-off errors so periods are comparable.
Each adjustment must be defensible and traceable to source documents. Aggressive or unsupported pro forma adjustments are the fastest way to lose a buyer’s trust during diligence.