A seller provides a schedule showing $325,000 of add-backs. That does not automatically mean normalized earnings are $325,000 higher. An add-back schedule is a starting point, not a conclusion.

Each material adjustment should be tested. Was the expense actually recorded? Can it be traced to the financial statements or general ledger? Is there documentation? Is it truly nonrecurring? Will the buyer incur the cost after closing? Is the amount reasonable? Was the expense personal, discretionary, extraordinary, or simply part of operating the business?

One of the most important disciplines in Quality of Earnings is resisting the temptation to treat every proposed adjustment as valid simply because the seller or broker included it in a presentation. Add-backs should be supported by evidence and economic logic. If they are not, normalized earnings can quickly become overstated.

A spreadsheet can describe an adjustment. Documentation has to support it.