Use this tool to assess whether free cash flow adjustments (addbacks) are legitimate, recurring, and SBA-compliant.

What Is an Addback?

An addback is an adjustment to earnings that removes non-recurring, discretionary, or owner-specific expenses to arrive at normalized free cash flow.

Legitimate Addbacks Include

• Excess officer compensation
• Personal vehicle or travel expenses
• One-time legal or professional fees
• Discontinued product lines or rent from closed locations

Common Addback Abuses

• Recurring marketing or repair expenses labeled ‘one-time’
• Owner perks that will need to be replaced (e.g., spouse salary)
• Addbacks that overlap (e.g., double-counting rent + salary)
• Future projections used to justify removing valid historical costs

Review Questions

• Is the addback clearly documented by seller?
• Will this expense truly disappear post-sale?
• Would a third-party buyer also remove this?
• Has a replacement cost been added where needed (e.g., GM salary)?

Lender Tip

Inflated addbacks = inflated cash flow = inflated value. Request an addback schedule with explanations and verification for every adjustment proposed by the seller and/or broker.