Our M&A advisor added back seven hundred thousand dollars of owner salary and personal perks to our EBITDA, but the buyer insists we must spend four hundred thousand to hire replacement executives. How do we defend these add-backs?

Question

Tyler Smith · Accepted Answer

Buyers routinely attack owner compensation add-backs by claiming the business cannot function without the founder unless significant overhead is added to the payroll. If you claim a seven-hundred-thousand-dollar add-back because you drew that cash as personal salary and perks, the buyer's Quality of Earnings team will assess what seats you occupy and deduct market-rate salaries for every function you handle.

The defense against this deduction is built directly into your Accountability Chart. If you are operating as the Visionary, Integrator, and head of sales, the buyer is right: they will need to hire high-priced executives to replace you, and your adjusted EBITDA will be slashed accordingly.

To lock in your add-backs, spend the twelve to eighteen months before a sale systematically firing yourself from operational seats. Ensure you have an experienced Integrator running the Level 10 Meeting™, a dedicated sales director owning customer acquisition, and qualified department heads who GWC their roles. Your day-to-day role should ideally be limited to long-range strategic vision.

When your Accountability Chart proves that market-rate leaders are already in place and on the company payroll, you can demonstrate that the owner distribution is purely discretionary return on capital rather than deferred compensation for labor. Provide documented job descriptions and compensation benchmark studies showing that no new overhead is required to run the engine. That is how you keep your adjusted EBITDA whole.