Add-backs, done so they survive diligence
Add-backs are how you show what the business really earns once personal spending is stripped out. Done properly they raise your price. Done loosely they cost you credibility on everything else in the file.
What an add-back is
A cost in your accounts that a new owner would not carry. Adding it back to profit shows what the business would earn in their hands. Every small-business sale involves them, and buyers expect a schedule.
What survives
- Your own salary above or below market rate, adjusted to market.
- A vehicle used mainly personally, with the cost identified.
- Family members on payroll who do not work in the business.
- One-off legal, consulting or settlement costs that will not repeat.
- Personal travel, subscriptions or insurance run through the company.
- Rent above market where you own the premises.
What does not
The manager problem
The add-back buyers challenge most is your own salary, when you are also the person running the business day to day. If a buyer would have to hire a manager to replace you, that manager’s cost belongs in the accounts, not in your add-backs. Adjusting your salary to market is fair; removing it entirely is not.
A buyer who strikes an add-back starts re-reading everything else. Leave out the marginal ones and your credible add-backs land unchallenged.
How to present the schedule
- One line per add-back, with the amount, the year, and a one-sentence reason.
- The supporting document referenced by filename.
- Adjusted earnings shown alongside reported earnings, not instead of it.
- Three years, so the buyer can see consistency.
What happens if a buyer strikes one
Ask which and why before you argue. If they are right, accept it and say so; it costs you the multiple on that line and buys you trust for the rest of diligence. If they are wrong, show the document. Do not defend a line you cannot evidence.