Which EBITDA Add-Backs Will a Buyer Accept When I Sell My Company?

What an add-back is

Reported EBITDA is what your books say the business earned. An add-back is an expense you remove because it will not continue under new ownership. The result is adjusted EBITDA, the number a buyer applies a multiple to.

Why one line item can move the price

Earnings get multiplied. Expenses do not. FE International's September 2026 guide puts it this way: at the 7.0x median that the Pepperdine investment banker survey shows for IT companies with $1M to $4.99M of EBITDA, $100,000 of accepted add-backs adds $700,000 of enterprise value. At the 11.6x median across larger 2026 deals, which FE International cites from Bain, the same $100,000 is worth $1.16M.

FE International's worked example makes the point. A technology company with $1.84M of reported EBITDA and $2.17M of defensible adjusted EBITDA is worth $12.88M on the first number and $15.17M on the second at 7.0x. Same business, same customers, same day. The schedule is worth $2.29M.

What buyers usually accept

• Owner pay above what you would pay a replacement. Leave a market salary in the cost base and add back only the excess, because the buyer will hire someone to do the job.
• Personal expenses that ran through the company, with receipts.
• Genuinely one-time professional fees, such as a legal settlement, with an invoice and a plain reason it will not repeat.
• Costs tied to a product or business line you have discontinued.

What buyers usually push back on

Costs that show up every year and get called one-time. A buyer will see the pattern in your ledger.

Savings you have not realized yet. A cut you plan to make is a plan, not an earning.

Anything without paper behind it. If you cannot show the ledger entry and the invoice, expect it to come out.

Capitalized software development. FE International calls this the largest hidden distortion in software earnings. Engineering payroll that gets capitalized leaves the income statement, so EBITDA looks higher while the cash still went out. Buyers normalize it by deducting that spend to get a cash view. Expect them to test your policy, and note that the FASB's ASU 2025-06 changes the capitalization rules for periods beginning after December 15, 2027.

A hypothetical, labeled as one

This is an illustration, not a real company. A founder-owned software business shows $1.5M of EBITDA. A buyer accepts a $120,000 owner-pay excess and $30,000 of documented personal expenses, and rejects a $90,000 "one-time" cost that appears in three straight years. At a 7.0x multiple, the accepted $150,000 is worth $1.05M of enterprise value. The rejected $90,000 is worth nothing, and it makes the buyer read the other lines more carefully.

EBITDA or seller discretionary earnings

Below roughly $5M of enterprise value, buyers of owner-operated businesses often use seller discretionary earnings, which adds back the owner's entire pay. Above that, EBITDA is standard and a market salary for your role stays in the numbers. Know which one your buyer is using before you build the schedule.

Why a rejected add-back costs more than itself

FE International's point is that a challenged add-back costs you credibility and price at the same time. Once a buyer decides one line was aggressive, the rest get the same scrutiny. FE International also reports that roughly two-thirds of banker-run sale processes reach a closing, and the most common reason the rest do not is a valuation gap between buyer and seller, most often 11% to 20%.

What to do before you go to market

Build the schedule as a document set. For each line, write the amount, the ledger entry, the invoice or contract, and one sentence on why it will not recur. Have your accountant review it. Then ask what a buyer's quality of earnings team would find, because they will look.

General information, not accounting advice.

Related reading: What Is a Quality of Earnings Report and Why Does Every Buyer Require One; What is a good EBITDA multiple for a software company; How does PE actually value a bootstrapped SaaS company in 2026; What does Anthropic walking away from a $6 billion acquisition tell founders about due diligence.