An $8.4M Swing in Price?
Bill thought his business was worth $28 million. Then the buyer's lender opened the books. His add-backs didn't hold up, and it cost him $8.4 million.
Bill went into the deal with $4.1 million in EBITDA and a target multiple of 7x, so a price of $28 million. But after the buyer's Quality of Earnings review, his EBITDA got restated down to $2.9 million, same multiple, but $8.4 million of value gone. After more than 15 years of selling companies, this is one of the hardest parts of a sale, not the business itself. It's whether the add-backs hold up.
Here's the part that stings: it wasn't fraud. It wasn't sloppy leadership. It wasn't even poor bookkeeping. Bill had done what smart owners do, run every possible expense through the business to keep taxes down. That part was fine. The problem came when he tried to add those same expenses back to boost his EBITDA for the sale and couldn't prove which ones were really personal versus actual business expenses. Buyers and banks don't value your business on tax strategy. They value it on clarity, credibility, and risk. That's the gap I want to help you close, not by paying more tax, but by understanding which add-backs will actually survive scrutiny.
You can't double-dip on the same dollar
Running personal or discretionary costs through the company is normal, and it lowers your tax bill. As long as those expenses can conceivably be considered business expenses, there's nothing wrong with that. The trap is expecting to get that benefit twice: once as a tax deduction over the years, and again as an add-back that inflates EBITDA at sale. Under scrutiny, you often get one or the other. And whether you get the add-back comes down to a single question: can you prove it?
Take the everyday examples I see. A run of Costco expenses booked to the business, but a buyer's team can't tell which items were office supplies and which were for your kitchen at home, so they won't let you add them back. Or that industry trade show that was really just a boondoggle: you can't prove it wasn't necessary for business, so the bank won't allow it as an add-back either. The buyer might personally believe your explanation. The bank won't take your word for it, and that's what matters, because the bank decides how much of the purchase it will finance. Every add-back it disallows is money the buyer now has to find somewhere else, which drags down the price they can pay.
What actually survives is narrow. Banks will typically add back a personal auto and a cell phone, maybe a home office, and not much else without careful, documented proof that a cost was personal rather than a genuine expense of the business. Everything in the gray zone, they strike. That's why the EBITDA in your head and the EBITDA a lender will underwrite can be two very different numbers.
This is where a transaction expert earns their fee before you ever list. Someone who's sat on the buyer's and lender's side of the table can go through your add-backs in advance and tell you which will hold and which won't, so you set the price on numbers a bank will actually finance, instead of discovering the gap in diligence when it's too late to fix.
Why bookkeeping matters
Because undocumented add-backs are one of the unseen reasons good companies never change hands at all. Not because the business had no value, but because the owner couldn't prove the value they knew they deserved in a form a buyer and a bank would accept.
Your books aren't just records for your accountant. They're the story a buyer, a lender, and an investor use to decide what your company is really worth, and whether it survives you.
Not every add-back tells the same story, though.
Holds up on its own. Legal fees from buying out a partner. One-time, tied to a specific event, no reason a buyer needs to worry it repeats.
Holds up with paperwork. A spouse or family member on payroll who wasn't actually working for the company. Real money out the door, but you'll need to show clearly that they were not doing any work needed for the business.
Doesn't survive diligence. Home maintenance you can't cleanly separate from office maintenance. No clean split, so it gets struck.
Keep the tax benefit. You've earned it. Just go in knowing which category each add-back falls into, so the number in your head matches the number at the table.
The takeaway
You can expense it or add it back, not always both. The add-backs that survive are the ones you can prove, and the bank's opinion matters, not just the buyer's.
So ask yourself: if a lender's team reviewed your add-backs today, how many could you actually document? Tell me in the comments. The honest count is usually where the real valuation conversation starts.
Before you go
I've turned the buyer's-side checklist I use into a short Business Worth Buying Scorecard, the same red flags a buyer's team looks for, so you can find them first. Grab it here.
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