Our historical books show a lot of discretionary expenses, personal travel, and one-time software integration costs that we need to add back to normalize our EBITDA. How do we document these adjustments to withstand the scrutiny of a buyer's forensic accounting team?

Question

Tyler Smith · Accepted Answer

If your addbacks are sloppy, a buyer's forensic accounting team will tear them apart during due diligence, driving down your valuation. To defend your adjusted EBITDA, every single addback must be backed by irrefutable, documentary evidence. Do not just hand over a spreadsheet of estimated numbers. Create a dedicated ledger for each adjustment category. For discretionary personal expenses or owner compensation, provide the specific general ledger transactions, invoices, and tax filings that prove these costs are not necessary to run the business under new ownership. For one-time software integration costs, document the specific scope of work, vendor contracts, and completion dates. This proves these expenses are truly non-recurring and should not be factored into your ongoing run-rate operating costs. Assign this documentation task to your finance seat on the Accountability Chart as a high-priority quarterly Rock well ahead of your exit. Use your Level 10 Meetings to review the progress of this audit-readiness work. By treating your addback documentation with the same rigor as an external audit, you eliminate the buyer's ability to claim your earnings are volatile or unverified. This level of preparation protects your EBITDA baseline and ensures you get paid full market value for every dollar of true operating profit.