EBITDA Adjustments Childcare Buyers Must Understand

Almost every childcare centre in Australia is priced off a multiple of adjusted EBITDA. But the word “adjusted” is where most of the argument happens — and where most buyers either overpay or walk away from a good deal for the wrong reasons. If you are looking at a centre’s Information Memorandum for the first time, the headline EBITDA number on page three is not a number you should trust. It is a proposal.

What “Adjusted EBITDA” Actually Means in a Childcare Deal

The key point for buyers is this: the EBITDA that appears in statutory accounts is rarely the EBITDA a centre actually produces under normal operating conditions. Owner-operators run their business for tax outcomes and lifestyle, not to present a clean P&L to a buyer. So before a centre goes to market, the broker rebuilds the profit line to show what a reasonable third-party operator would earn. That rebuilt number is adjusted EBITDA, sometimes called normalised EBITDA.

In our transaction experience across 2025 and early 2026, adjusted EBITDA on a centre that trades between $1.2m and $2.5m in revenue is typically $80,000 to $250,000 higher than statutory EBITDA once all legitimate adjustments are made. On a 4.0x multiple, that gap is worth $320,000 to $1m in headline price. Which is why nothing in this exercise is small money.

The Legitimate Add-Backs (What Goes Back into EBITDA)

These are the adjustments a buyer should accept when the evidence stacks up. Every add-back needs a paper trail — the seller’s word alone is not enough.

Owner’s above-market salary. Many sole-operator owners pay themselves $180,000–$250,000 as a working director, when a hired Centre Director on the Children’s Services Award MA000120 would earn closer to $95,000–$120,000 plus super. The difference is a genuine add-back — the new owner will replace the working owner with a salaried director, and the centre’s ongoing profit includes that market-salary cost, not the seller’s inflated one.

Related-party rent below market. If the owner also owns the property and charges their own business $1,800 per place when market rent is $2,300 per place, a buyer who does not own the freehold will pay full market rent after settlement. The broker should remove the favourable rent and substitute market rent — this is an adjustment against EBITDA, not in favour of it. We flag this separately in the next section because it cuts the other way.

One-off legal or consulting fees. A one-time lease restructure, a failed DA attempt on a neighbouring block, or a dispute resolution fee that will not recur should come out. The test is simple — will this cost happen every year under normal operations? If not, add it back.

Personal motor vehicle and travel. A fully expensed Range Rover and an overseas “conference” in Queenstown are not centre operating costs. If the receipts show personal use, they add back.

Non-recurring marketing or setup spend. Grand-opening campaigns, a rebrand, or a one-off photography shoot are capital-in-nature for a going concern. Ongoing marketing (typically 0.5–1.5% of revenue in our files) stays in the cost base; one-off spikes come out.

COVID-era distortions and once-only government grants. JobKeeper, business support grants, and even some state-level one-off payments made 2020–2023 still show up in comparative years. They are not a repeatable income line and should be removed from any year they appear in.

The Adjustments That Reduce EBITDA (What Comes Out)

The less fun half. A professional broker will include these. If the IM doesn’t, you have your first clue about what kind of process you’re in.

Missing owner hours. If the owner works 40 hours per week as the Centre Director and pays themselves a director’s salary that reflects that, fine — no adjustment. But if the owner works 40 hours and draws a $60,000 salary plus trust distributions, the buyer will need to pay a full-salary Centre Director to replace them. The gap between the drawn salary and the market rate is a reduction in EBITDA, not an add-back.

Understaffed periods. We occasionally see centres that ran with ratios tight or below compliance during a vacancy and never backfilled. The P&L shows lower wages than a compliant, fully-staffed operation would run. A buyer has to assume full ratios and full staffing.

Deferred maintenance and capex shortfalls. If the centre has not repainted in six years, hasn’t replaced playground rubber, and has a dishwasher that will fail in month four, those costs hit the buyer’s first year. Brokers should deduct a normalised maintenance figure — we typically assume 1.5–2.5% of revenue annually for a centre ten-plus years old.

Wage award escalations. From 1 March 2026, Children’s Services Award classifications changed in ways that raise wage costs on most centres’ rosters. If the seller’s P&L ended 31 December 2025, an informed buyer will model the 2026 award rates and adjust EBITDA downward — even if the broker does not.

Red Flags — Dodgy Add-Backs Buyers Should Challenge

Not every number in a broker’s “proposed adjustments” column deserves to stand. These are the ones we see most often on our buy-side reviews.

The first is owner’s “time” priced at unrealistic rates. A $400-per-hour “consulting” add-back for the owner’s admin hours is not reality. If the owner genuinely did bookkeeping work, the add-back should be the cost of replacing that bookkeeper at market rates — not the hourly rate the owner thinks their time is worth.

The second is undisclosed family member wages. A spouse on the payroll at $80,000 who actually works is a legitimate wage cost and does not add back. A spouse on the payroll at $80,000 who does not attend the centre is a tax arrangement — but for a buyer, the replacement cost is whatever a real employee would earn in that role, which may be less than $80,000 or may be nothing at all. Either way, it is not a simple add-back.

The third is “one-off” costs that happen every year. Lawyers’ fees, accountants’ fees, repairs, staff turnover costs — every centre has some of these every year. Labelling them “one-off” does not make them one-off. Ask for five years of the same line item before agreeing to any add-back for these categories.

The fourth is occupancy normalisation. Some brokers show EBITDA at “stabilised occupancy” of 90% when the centre has been running at 72%. That is a projection, not a normalisation. Buyers should price the business on actual trailing-twelve-month performance and treat any occupancy uplift as the buyer’s upside, not the seller’s price.

How to Work Through a Broker’s Adjusted P&L

Here is the workflow we use on buy-side engagements. It is not complicated, but it is mechanical.

Key Takeaway

Adjusted EBITDA is where childcare deals are won and lost. The right add-backs — owner’s above-market salary, genuine one-offs, related-party distortions removed in both directions — produce a number that reflects what the centre actually earns for a new owner. The wrong ones inflate the price and leave the buyer short-funded in year one. Treat every line in the adjustments column as a proposal, ask for evidence, and build your own number before you sign.

Sources

• Fair Work Commission / Children’s Services Award MA000120 pay guide and 1 March 2026 classification update; IBISWorld Child Care Services in Australia 2025 (wages-to-revenue benchmark); Benchmark Business Sales and Finexia commentary on childcare EBITDA multiples; ATO guidance on related-party transactions; ChildcareLink transaction experience 2024–2026.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. ChildcareLink recommends seeking independent professional advice tailored to your specific circumstances before making any business or investment decisions.