Every dollar of addback you can prove is worth four to six dollars of purchase price. That’s the whole reason this topic matters: your price is a multiple of adjusted earnings, so a $25k expense that legitimately comes back to EBITDA is worth $100k or more at closing, and a $25k addback that dies in diligence takes the same amount with it, plus a bite out of your credibility that discounts everything else on your list.
An addback, quickly defined: an expense on your P&L that won’t exist for the buyer, added back to earnings so the business shows what it really produces. We covered where addbacks sit in the EBITDA and SDE arithmetic. This post is about which ones survive scrutiny, which ones don’t, and the documentation habit that decides between those outcomes.
The clean ones
These are the addbacks buyers expect to see and accept with minimal argument, provided the paper trail exists.
Owner compensation above market. You pay yourself $250k for a role that would cost $150k to fill. The $100k difference adjusts earnings, with the emphasis on difference: the market cost of replacing what you actually do stays in the expense base. (If you underpay yourself, this cuts the other way, and an honest buyer will apply it that way.)
Personal vehicles. The truck the business owns that never visits a client site. Payment, insurance, fuel, maintenance, all of it adds back cleanly when the personal use is real and documented.
Family on the books. The spouse on payroll for bookkeeping that takes three hours a month, the family phone plan, the kid’s “internship.” Add back what’s personal, keep in the cost of whatever work is genuinely being done, because someone will have to do it after close.
True one-time expenses. The lawsuit settlement, the office move, the ransomware remediation from 2023, the one-off ERP consulting engagement. Non-recurring by nature, add back with the invoices attached.
Owner perks and discretionary spending. Country club dues, the conference in Maui that was 80% vacation, season tickets, personal travel on the company card. All standard, all add-backable, all requiring you to be comfortable saying the quiet part in a diligence meeting: yes, the business paid for that, and no, the business didn’t need it.
Above-market rent to yourself. If your building LLC charges the company $8k a month for space that rents for $5k, the $3k spread adds back. Below-market rent, again, cuts the other way, and buyers check both directions.
The ones that get laughed out of the room
Then there’s the other list, the one that turns a diligence meeting quiet. A few classics:
“Marketing didn’t really work, so add it back.” Expenses that failed are still expenses. The buyer needs marketing too, theirs might also fail, and this argument marks every other addback on your schedule for extra scrutiny.
Recurring “one-time” costs. The bad-debt writeoff that happens most years, the “unusual” hiring costs that appear every time someone quits, the annual equipment “surprise.” If it shows up in three consecutive years, it’s called operations.
The heroic salary theory. Adding back your entire $200k salary as if your GM, senior engineer, and rainmaker roles could be replaced for nothing. Replacement cost stays in. Always.
Half-personal, no-records expenses. The cell plan that covers family and techs alike, the vehicle that’s 60% personal by vibes. Without records, buyers either deny these or credit them at a steep haircut, and they’re the most common addbacks owners lose purely for lack of a log.
Growth spending you wish were profit. “We invested in a new engineer ahead of demand, add back her salary.” That’s a growth story, and it might be a good one, but it belongs in the narrative, never in the addback schedule.
The pattern behind the whole list: an addback answers “will this expense exist for the buyer?” and nothing else. Not “was it a good idea,” not “was it fair,” and never “do I need the number to be bigger.”
Documentation is the whole game
Here’s what separates the addback that pays from the identical addback that dies: whether it can be verified in under ten minutes. A quality-of-earnings analyst doesn’t take your word for anything. Each claimed adjustment gets traced to invoices, payroll records, and general ledger detail, and each one that traces cleanly builds the credibility of the next, while each one that doesn’t costs you twice.
So the habit, starting this month, is a running addback schedule: one spreadsheet, one row per item, with the vendor, the amount, the GL account, the personal-versus-business logic, and a folder of receipts behind it. Even better, run the personal expenses through clearly-labeled accounts (or stop running them through the business entirely, which is cleaner still). An owner who hands a buyer a documented schedule going back three years reads as someone whose whole P&L can be believed, and that impression is worth more than any single line on the schedule.
This is also one of the highest-yield items on the two-year preparation runway: it costs almost nothing, it compounds quietly, and it converts directly into proceeds at the multiple. Owners sometimes ask what their addbacks are worth as we talk through what the business is worth overall, and the honest answer is always the same. Documented, they’re worth their face value times your multiple. Undocumented, they’re worth an argument.
Keep the receipts. Future you is going to want them.