Banks and Add-backs

Yes, lenders will typically add-back reasonable items that can be verified to be either one-time or seller related in addition to typical EBITDA. Typical add-backs I will see is officer salary (although you then have to factor in a reasonable owner salary for a new owner / manager), family member salaries if they are not active in the business or leaving post-acquisition; verifiable benefits such as retirement, health insurance, auto expense; rent if the property is being purchased as part of the transaction; one-time repair, legal, or other expenses that can be verified as one-time (like settlement on legal action, the write-off of bad debt, one-time adjustments to inventory). Add-backs lenders will typically not use are items that cannot be verified. These will include owner travel expenses, owner personal expenses, meals & entertainment, etc. If you would like to discuss some specific expenses related to a transaction you are looking at I would be more than happy to discuss with you. I can be reached at --@----.com

When you say Legitimate, that means to you the addbacks are acceptable. When a Lender looks at them, they "may" look at it differently. Remember the burden of proof is on the seller to justify that addback if he wants a multiple of earnings on that number. It effects "both" the cash flow and the valuation. As a lender, we need to understand "why" it is an addback and does it make sense for cash flow purposes. Hope this helps. Bruce