Our CPA says we have plenty of add-backs that will increase our adjusted EBITDA, but we are skeptical. What operational expenses do buyers actually accept as legitimate add-backs during a transaction?

Question

Tyler Smith · Accepted Answer

Many business owners assume they can easily add back a long list of personal and discretionary expenses to inflate their adjusted EBITDA before a sale. However, sophisticated buyers and their due diligence teams will scrutinize every single adjustment. If your add-backs look aggressive or questionable, you will damage your credibility and risk stalling the entire deal.

To protect your valuation, you must understand which operational expenses buyers actually accept as legitimate add-backs. Legitimate adjustments typically include your excess compensation above fair market rate, non-recurring legal fees, one-time technology implementation costs, and personal lifestyle expenses run through the business.

To prepare for this scrutiny on your exit runway, start tracking and documenting these adjustments now. Do not wait until you are in due diligence. Work with your finance seat to maintain a clean ledger of all potential add-backs, supported by receipts and clear business justifications.

Better yet, begin eliminating unnecessary personal expenses from your business accounts entirely on your runway. This simplifies your financials and presents a clean, institutional-grade balance sheet to prospective buyers.

By being conservative and highly documented with your operational adjustments, you show buyers that your financial reporting is honest, transparent, and built on high integrity. This trust is crucial for keeping your transaction on track.