A Quick Word About Add Backs

April 22, 2026

by a lender from University of San Diego in Tampa, FL, USA

When I review a deal, one of the first things I check is how the seller/broker arrived at adjusted SDE/EBITDA. Standard, defensible add backs are pretty simple: → Depreciation → Amortization → Interest → Owner's compensation → Non-cash charges. That's pretty much the list. Where deals get into trouble is when cell phones, utilities, rent (when undoubtably will continue), internet, employee healthcare, and failed marketing campaigns (not exaggerating!)show up as add backs. These are ongoing operating expenses. The new owner will pay them on day one and every day after. I get the instinct. Adjusting them out makes the multiple look more attractive. But lenders will back them out, and experienced buyers spot it quickly. The cleanest path is usually the most straightforward one: base SDE/EBITDA on how the business actually runs, and limit add backs to expenses that genuinely won't continue. It builds trust, holds up in underwriting, and gets more deals to the closing table. What add backs are you seeing that give you pause?

Reply by a searcher
from Howard Payne University in Austin, TX, USA

I'm frequently surprised by what isn't included in add-backs. There was a "company cabin" NOT added-back. The owners considered it an employee benefit and truly believed their employees loved going there. It had been used three times in the prior year, twice by family members. They eventually hired an appraiser and sold the property prior to closing.

Reply by a professional
from Michigan State University in Brighton, MI, USA

Great thread, thanks @redacted‌. Yes, I’ve got a few that come to mind from the last year or so: – Family vacations buried in T&E and booked as “business development,” with 20–30k per year proposed as add‑backs. – Related‑party “management fees” to an owner‑controlled LLC that magically became 100% non‑recurring once it was time to market the deal. – Phantom payroll in the form of salaries for inactive family members. The pattern is almost always the same. The crazier the add‑backs, the more you’re being asked to underwrite a “story” rather than cash flow. My rule of thumb when I’m doing pre‑LOI underwriting or financial modeling for buyers: 1) Can we clearly identify who got paid, and for what? 2) Is there a credible, documented reason that the spend truly disappears under a new owner?

+11 more replies.

Join the discussion