Addbacks

When buying a business, understanding what qualifies as a legitimate addback is essential to getting the valuation right and gaining lender confidence. Too often, deals fall apart because financials are unclear, or padded with aggressive or unjustified adjustments. Let's discuss some common (and acceptable) addbacks include: - Owner salary above market - One-time legal or consulting fees (e.g., engaging a business broker) - Wages paid to family members who aren’t involved in the business and will not continue post-sale - Personal vehicle or travel expenses not essential to operations - Charitable contributions - Depreciation and amortization - Interest expense ⚠️ Be cautious with non-operating income such as gains from asset sales or insurance proceeds. These can artificially inflate cash flow but aren’t part of ongoing business performance. Important caveats: • Documentation is key. Addbacks must be supported with clear financial records and credible explanations. • Recurring or essential expenses usually don't qualify. If it’s part of running the business, it stays. As a lender, we have to base cash flow on what's verifiable, recurring and legitimate business expenses. Bottom line: Clean financials and credible addbacks build trust. And trust closes deals.