Frequently Asked Questions
What are the three main reasons a company would need to use add-backs to determine its true earnings?
Add-backs are a crucial tool for businesses to accurately determine their true earnings. There are three primary reasons why a company might need to use add-backs. Firstly, add-backs can be used when a company is seeking to borrow money for business use. Lenders often require a clear picture of a company's financial health, and add-backs can provide a more accurate representation of the company's earnings by adjusting for non-recurring or discretionary expenses. Secondly, add-backs can be used when a company is planning to reinvest in the business. By providing a more accurate picture of the company's earnings, add-backs can help business owners make informed decisions about how much money they can afford to reinvest in the business. Lastly, add-backs can be used to determine a fair salary for the buyer when they begin running the business. By adjusting the company's earnings to reflect the true income that a new owner can expect, add-backs can help ensure that the buyer's salary is commensurate with the company's earnings.
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