Add-backs are expenses added back to reported net profit to calculate true owner cash flow (SDE or EBITDA). Legitimate add-backs include the owner's salary and perks, interest, taxes, depreciation, and genuinely one-time or non-operating costs a new owner won't repeat.
Legitimate vs aggressive
| Add-back | Verdict |
|---|---|
| Owner salary $110,000 | Legitimate |
| One-time lawsuit $8,000 | Legitimate |
| "Slow year" marketing cut $30,000 | Aggressive |
| Family payroll that still works there | Aggressive |
Each $1 of accepted add-back at a 2.7× multiple adds $2.70 to the price, so aggressive add-backs cost you 2.7× over.
Why it matters when buying a business
Add-backs directly set the price you pay, because you buy a multiple of the adjusted number. Sellers are motivated to stretch them; your job, often via a Quality of Earnings review, is to keep only the defensible ones. Overstated add-backs also inflate DSCR and can get a loan into trouble.
