We run several personal expenses, non-recurring experiments, and cousin-on-the-payroll costs through our business. How do we track and defend these EBITDA add-backs so a buyer actually accepts them?

Question

Tyler Smith · Accepted Answer

Every dollar of personal or non-recurring expense you run through your business must be meticulously documented if you want a buyer to add it back to your EBITDA. If you cannot prove an expense was personal or non-operational, a buyer will treat it as a legitimate operating cost, which directly reduces your enterprise value.

Start by creating a strict tracking protocol on your exit runway. Establish a dedicated general ledger account for non-operating expenses, or tag these transactions clearly in your accounting software. Do not wait until due diligence to try to reconstruct three years of personal expenses from memory.

For every potential add-back, maintain a physical file with receipts and a clear written explanation of why the expense is not required to run the business. This applies to owner salary premiums, personal auto leases, family members on the payroll who do not work, and one-time legal fees or software implementation costs.

Be realistic about what buyers will accept. If a family member actually performs a critical role, you must adjust their salary to market rate and only add back the premium. If you cannot run the business without a specific software tool, that cost is not an add-back. By presenting a clean, audit-ready add-back schedule backed by ironclad documentation, you maximize your adjusted EBITDA and command a higher valuation.