What the seller’s adjusted EBITDA claims: “Reported profit is $1.1M, but add back my above-market salary, the one-time lawsuit, the personal car, and my son’s phantom job, and it’s really $1.6M.”

What survives the buyer’s accountant: maybe $1.3M. The difference, half a million of “adjusted” earnings that didn’t hold up, comes straight off the price, because the price was a multiple of EBITDA. Addbacks are where the quality-of-earnings review does its real damage, and knowing which ones survive is worth more than any negotiating tactic.

What an addback is supposed to be

A legitimate addback restores EBITDA to what the business will actually earn under normal ownership, removing costs that are genuinely personal, non-recurring, or specific to the current owner, and that a buyer truly won’t inherit. The keyword a credit team applies to every single one is sustainable: will this adjustment still be true a year after close? If yes, it survives. If it depends on the buyer doing something, or on a cost simply not recurring by luck, it’s suspect.

Addbacks that survive

  • Owner’s above-market compensation. If the owner pays themselves $400K but a hired manager doing the job costs $180K, the $220K difference is a real, sustainable addback, you genuinely won’t pay it. (The market salary must be realistic, not zero.)
  • Documented one-time events. A lawsuit settlement, a flood repair, a one-off consulting project, provided there’s a paper trail and it’s genuinely non-recurring. “One-time” that happens most years isn’t one-time.
  • Truly discretionary owner perks. The owner’s personal vehicle, personal travel booked through the company, a country-club membership that has nothing to do with the business, clean, personal, and gone under new ownership.
  • Discontinued lines. Losses from a product or location that’s being shut down before or at close, where the shutdown is real and documented.
  • Related-party rent above market, if you’re buying the operating company and the below-or-above-market lease will reset to market, the difference normalizes.

Addbacks that don’t

  • “Marketing we can cut.” If the marketing spend drives the revenue you’re buying, cutting it cuts the revenue. Buyers and lenders treat “efficiency we’ll find later” as fiction until proven.
  • Family members who actually work. If the owner’s spouse really does the books, that’s a job you’ll have to pay someone to do. Their salary is a real cost, not an addback, no matter how it’s labeled.
  • Normal maintenance dressed as one-time. Equipment repairs, routine replacements, and recurring “special projects” that recur every year are operating costs, full stop.
  • Deferred spending. EBITDA flattered by not spending on maintenance, equipment, or staff that the business actually needs isn’t higher earnings. It’s a bill you’ll inherit. This one often shows up as a negative adjustment when the accountant catches it.
  • Optimistic run-rating. “We signed a big customer in month 11, so annualize it”, projecting a partial-year event across a full year. Credit teams underwrite what happened, not what’s annualized.
  • Synergies from the buyer’s side. Cost savings that only exist because you are buying belong in pro forma EBITDA analysis, not in the target’s standalone adjusted number, and even there they’re discounted heavily.

Why the direction is almost always down

The seller assembled the most favorable defensible case. The accountant’s job is to remove what isn’t sustainable and add back what the seller conveniently omitted, deferred maintenance, an underpaid key employee who’ll need a raise, a rent that resets. Structurally, that pushes the number down more often than up. A buyer who modeled the deal on the seller’s adjusted figure modeled a deal that likely doesn’t exist at that price.

Why it decides your financing, not just your price

The lender sizes debt off the surviving EBITDA, so weak addbacks hit you twice: you were about to overpay, and the debt capacity you counted on shrinks with the number. This is why the capital stack shouldn’t be locked until diligence lands, the addback review can quietly move both the price and the financing at once.

If you’re the one being bought

Run the test on yourself before a buyer’s accountant does. Document every addback with evidence, drop the ones that won’t survive, and present a clean adjusted EBITDA that holds up. A seller whose addbacks survive diligence untouched closes faster and at a better multiple, because you’ve removed the biggest source of last-minute repricing. That’s the same discipline a credit team rewards in any borrower.

Run your own file first

Want to know which of your addbacks would survive scrutiny, before it costs you at the table? Run the assessment or send us your documents and we’ll read them the way a credit team would.

Educational only. Nothing here is an offer of credit, a commitment to lend, accounting advice, or advice on any specific transaction.