A Quick Word About Add Backs

When I review a deal, one of the first things I check is how the seller/broker arrived at adjusted SDE/EBITDA. Standard, defensible add backs are pretty simple: → Depreciation → Amortization → Interest → Owner's compensation → Non-cash charges. That's pretty much the list. Where deals get into trouble is when cell phones, utilities, rent (when undoubtably will continue), internet, employee healthcare, and failed marketing campaigns (not exaggerating!)show up as add backs. These are ongoing operating expenses. The new owner will pay them on day one and every day after. I get the instinct. Adjusting them out makes the multiple look more attractive. But lenders will back them out, and experienced buyers spot it quickly. The cleanest path is usually the most straightforward one: base SDE/EBITDA on how the business actually runs, and limit add backs to expenses that genuinely won't continue. It builds trust, holds up in underwriting, and gets more deals to the closing table. What add backs are you seeing that give you pause?