EBITDA Add-Backs Buyers Actually Accept

EBITDA add-backs are where deals are won and lost. A defensible $300K of normalizations at a 5x multiple is $1.5M of enterprise value. The same $300K presented poorly — or rejected in diligence — is $1.5M lost plus a credibility problem on every other number. Here's what buyers will actually accept.

Add-backs that are almost always accepted

• Excess owner compensation: the gap between what the owner is paid and what it would cost to hire a replacement at market rate.
• Owner personal expenses run through the business: personal vehicles, family cell phones, country club, personal travel — but only if documented and clearly personal.
• Above-market rent to an owner-controlled entity: the difference between what you pay yourself and market.
• One-time legal or professional fees: a specific lawsuit, a one-time tax dispute, a partner buyout.
• Non-recurring repairs or capex booked as opex: roof replacement, one-time IT overhaul.
• Family members on payroll who don't work in the business: obvious — but only if obvious.

Add-backs that buyers fight

• "Pro forma" cost savings: "If we cut these three people, EBITDA would be $400K higher." Buyers won't pay for synergies they have to execute.
• "One-time" expenses that happen every year: if it shows up in two of three years, it's not one-time.
• Marketing spend you stopped six months ago: buyers assume revenue depends on the spend until proven otherwise.
• Owner comp adjustments above market: you can normalize down to market, not below it.
• Pandemic-era "missed" revenue: long since stale, almost universally rejected now.
• Add-backs without documentation: if there's no invoice, no contract, no clear story — it's getting cut.

How to document add-backs

For every add-back, you need:

1. The GL account and amount, tied to your trial balance
2. The specific reason it's not normal operating cost
3. Supporting documentation — invoice, contract, board minutes
4. A statement of whether it's recurring or one-time, and why

Build a single "Adjusted EBITDA bridge" workbook with one row per add-back, three columns of detail per row. If you can hand a buyer this workbook on day one of diligence, your credibility goes up and your re-trade risk goes down.

What to do this quarter

1. Build the adjusted EBITDA bridge for the last three years.
2. Color-code: green (defensible with documentation), yellow (defensible with story), red (cut now).
3. If EBITDA is above ~$1M and a sale is 6–12 months out, commission sell-side QoE.
4. Stop running new personal expenses through the business 12 months before going to market.