Valuation
Add-backs are one-time or owner-specific costs added back to profit, so the earnings show what a new owner would actually earn.
Add-backs are adjustments that raise reported profit to show true, repeatable earnings. They cover costs that a new owner would not have to pay, or that will not happen again.
For example, an owner pays a family member $150,000 for a role that does not exist, and the company paid $100,000 for a one-time legal case. A buyer may add back $250,000 to profit if it can prove both items.
Add-backs matter because each dollar can raise price by the EBITDA multiple. At 6x, that $250,000 adds $1.5 million of value. For example only: buyers test every add-back, and they may reject those without proof.
Keep clear records for each item. Pair them with a quality of earnings review for credibility. The result is adjusted EBITDA. Learn the full process in how to prepare your company for a private equity sale.
Related terms
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