Glossary
Add-backs
Expenses added back to profit on the claim they will not continue under a new owner. Some are real. The unevidenced ones sink applications.
In plain English
An add-back is an expense the vendor says a new owner will not incur, so it gets added back to profit when presenting the business: the owner's car, a one-off lawsuit, a relative on the payroll who does not really work there. Each one pushes the earnings figure up, and with it the asking price.
A legitimate add-back passes three tests: it is genuinely non-recurring or genuinely personal, it is clearly identifiable in the accounts, and it can be evidenced with documents. Most contested add-backs fail the third test.
Why a lender cares
Add-backs are where acquisitions are won and lost, twice: once on price, once at the bank. Credit teams strike out every add-back that lacks evidence, and the earnings figure falls with each strike until the deal stops servicing. We have seen a vendor's $214,000 of claimed add-backs reduce to $63,000 under testing. The price conversation changed accordingly.
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