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Prepare Owner Add Backs for a Business Valuation

Owner add backs need a paper trail. Before a valuation conversation, separate unusual or personal expenses from the costs a new owner must keep paying to run the business.

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What could your business be worth?

Start a conversation with a business valuation partner.

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Start your earnings review with Albuquerque Business Brokers Edge and bring the questions below to the people helping you prepare.

Start from the financial statements

Use a reported profit figure that reconciles to the books and tax records. Keep your adjustments in a separate schedule so a buyer can follow the bridge to adjusted earnings.

Identify the expense, amount and reason for each proposed adjustment. An invoice or payroll record is more useful than a rounded estimate based on memory.

A personal expense does not become an add back simply because the owner paid it. Establish where it appears in the accounts and whether a buyer would avoid that cost.

Keep replacement costs in the picture

If you work in the company, the next owner may need to pay someone to do that job. Removing all of your compensation without considering the role can overstate earnings.

Recurring repairs, necessary staff and ordinary rent are operating costs even when they feel expensive. Explain them rather than using adjustments to hide the cost of running the business.

Distinguish cash movements from profit

Owner draws, loan proceeds and money from selling an asset are not automatically operating earnings. Your accountant can explain the correct treatment for each item.

Ask a valuation partner to review the schedule as a starting point. Supported adjustments improve a discussion; they do not guarantee that every buyer accepts the same earnings figure.