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Glossary

What is Add-Backs?

Also called: normalization adjustments, EBITDA adjustments, recasting

In one sentence: Expenses added back to reported earnings because they are non-cash, will not continue after a deal, or are personal to the current owner.

Last updated · Precise SBA editorial

In plain English

A tax return shows what a business reported, not necessarily what it earns for a new owner. Add-backs are adjustments that put expenses back in because they will not recur, do not use cash, or belong to the person selling, not the business.

Common add-backs

  • Interest on debt that is being paid off or replaced.
  • Depreciation and amortization, which are accounting charges rather than cash leaving the business.
  • One-time items: a legal settlement, a move, an unusual repair.
  • Owner-specific costs run through the business: a personal vehicle, family members on payroll who will not stay.
  • Rent that goes away if the buyer is also buying the building.

What lenders challenge

Add-backs are where the numbers move most, so they get the most scrutiny.

  • “One-time” costs that appear every year are not one-time.
  • Owner pay set too low. If the business has to pay someone to run it, the lender deducts a realistic salary.
  • Anything unsupported. Expect to explain and document each one.

Hypothetical example

A seller reports $300,000 of net income and claims $90,000 of add-backs. The lender accepts $50,000 with documentation and rejects $40,000 as recurring. The business’s cash flow for sizing the loan is lower than the seller’s pitch, and so is the price it can support.

Common mix-ups

  • An add-back is not a deduction. They go in opposite directions; lenders apply both.
  • The seller’s schedule is not the lender’s. Plan on the lender’s version.

What to do with it

Collect support for each add-back before it is questioned, and see how it flows through how lenders calculate cash flow.

Common questions

Which add-backs do lenders usually accept?

Interest, depreciation and amortization are routine. One-time items and owner-specific costs are accepted when they are documented and credible. Anything that depends on the seller’s say-so gets tested against returns and records.

Why do buyers and lenders disagree on add-backs?

A seller wants a higher cash flow to support a higher price. A lender wants only what is verifiable and recurring. The lender’s number is the one that sizes the loan.

Are there deductions as well as add-backs?

Yes. Lenders also deduct things like needed owner pay and unfinanced maintenance spending, which can lower the number the seller quoted.

Related terms

Debt Service Coverage Ratio (DSCR)Cash available to pay debts, divided by the debt payments due in the same period; above 1.0x there is a cushion, and lenders want margin above their own minimum.Quality-of-Earnings (QoE) ReviewAn independent analysis of a business’s earnings that tests whether reported profit is real, repeatable and supported by records.Global Cash FlowA combined view of the business and the owner’s household that tests whether all income can cover all debt payments, business and personal.

Go deeper

How Lenders Calculate Cash Flow and DSCR, Step by StepFrom net income to a coverage ratio in five steps, with every number shown. This is the math behind most acquisition and expansion loan decisions.Documents You'll Need for an SBA Loan (and How to Get Them Ready)The paperwork is the part most owners dread. It's easier if you know what's coming and gather it once.

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General information, not legal, tax or financial advice. Precise SBA is not affiliated with the U.S. Small Business Administration. Rules and lender policies change. Examples use hypothetical numbers. We never charge you. If a loan closes, the lender may pay us a referral fee, disclosed on SBA Form 159 (how we get paid). Back to the glossary.