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M&A Explained

What Is an Add-Back in a Business Sale?

A plain-English answer, and why it matters when you actually sell.

Short answer: An add-back is an expense removed from a business's reported earnings to show the true profit a new owner would keep. Legitimate add-backs include an above-market owner salary, personal expenses run through the business, one-time costs, and non-recurring items. Defensible add-backs increase your adjusted EBITDA or SDE, and therefore your sale price, dollar for dollar.

Why Add-Back matters when you sell

Reported profit on a tax return is often deliberately low, because owners run legitimate personal costs through the business and pay themselves above or below market. Add-backs normalize that: they restate earnings to reflect what a rational new owner would actually keep. Because your price is a multiple of adjusted earnings, every dollar of defensible add-back is multiplied into the sale price.

The word that matters is defensible. Buyers scrutinize add-backs hard in diligence, and aggressive or unsupported ones destroy credibility and invite a re-trade. WETYR identifies every legitimate add-back and documents it so it survives buyer scrutiny and lifts your number.

Frequently asked questions

What are common add-backs?
Above-market owner compensation, owner health insurance and vehicles, personal travel, one-time legal or professional fees, non-recurring repairs, and discontinued expenses. Each must be documented to hold up in diligence.
Why do add-backs increase my sale price?
Because the price is a multiple of adjusted earnings. Adding a defensible $100,000 of add-backs at a 4x multiple raises the price by $400,000. That is why getting them right matters so much.
Can a buyer reject my add-backs?
Yes, in diligence, if they are not documented or not truly one-time or owner-specific. Aggressive add-backs backfire. Well-supported ones stand and lift your price.

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