Frequently Asked Questions
What are some additional items that can be considered as add-backs apart from the typical EBITDA add-backs?
AApart from the standard EBITDA add-backs, which include Expenses Before Interest, Taxes, Depreciation, and Amortization, there are several other items that can be considered as add-backs. These additional add-backs are typically used to adjust the company's taxable income to reflect the true income that a new owner can expect in the future. One such add-back is the owner's compensation. This is because the new owner has the discretion to decide their own salary. Another add-back can be the difference in wages paid to family members if they are paid more than the going rate for their work and can be replaced with a lower-paid employee or contractor. One-time expenses such as the purchase of equipment or vehicles, retirement plan contributions, employee severance payments, lawsuit settlements, and personal expenses that are not related to running the business can also be considered as add-backs. Losses due to unexpected events like storm damage or fire are also typically added back. Discretionary expenses, such as the owner's salary, use of a company car, a cell phone, life insurance, or company sponsorship of a family member's team or event, are also considered add-backs.
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