The investor’s field guide · A
Add-backs
Adjustments that add selected expenses back to reported profit when estimating maintainable business earnings.
Explained by the editorial team
Add-backs are expenses removed from a profit calculation because someone argues they will not continue under new ownership. Examples might include a genuinely one-off legal bill or a personal expense paid through the business. An adjustment is a proposition to verify, not additional cash in the bank.
A worked example
A seller adds back £12,000 for a legal dispute that has ended. The buyer checks the invoice and asks whether similar disputes recur. If they are an ordinary cost of trading, treating the expense as exceptional may overstate earnings.
What to examine
Request evidence for each adjustment and compare several years. Costs described as one-off every year are rarely exceptional in aggregate. An owner’s salary may be adjustable, but the work still needs doing and replacement labour has a cost. Keep reported profit, seller-adjusted profit and your own view of maintainable earnings separate. This makes differences visible before discussing a valuation multiple.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.