Add-backs (definition)
Adjustments that restate agency earnings to what a buyer would actually receive: owner comp normalization, one-time costs, personal expenses.
Add-backs are the adjustments that turn an agency’s reported earnings into normalized EBITDA: expenses a new owner would not bear, restated to show the business’s true earning power. Classic examples are above-market owner compensation, personal vehicles and travel, family members on payroll beyond their role, and genuine one-time costs.
Every add-back is an assertion, and diligence exists to test assertions. Documented, conservative add-backs survive quality-of-earnings review; aggressive ones get repriced, and the repricing usually costs more than the add-back claimed.
The discipline is simple to state: if you would have to explain it twice to a skeptical accountant, document it once before you list it.