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Main Street WealthOpen source
Valuation

Adjusted EBITDA add-backs

Build a defensible add-back schedule with a documentation checklist for each adjustment.

LivePre-saleNot legal, tax, or financial advice
Written by
Sukhrobjon (Rob) Ismoilov
Reviewed by
Avaz Bokiev
Published Reviewed

Starting point

$

EBITDA from the P&L, before any adjustments.

Add-backs

Add one row per adjustment. Each one gets a documentation checklist so a buyer can trace it.

$
Documentation0/3
$
Documentation0/3
$
Documentation0/3
$
Documentation0/3

How to use it

Build the add-back schedule a buy-side QoE will actually accept. Each add-back has its own documentation checklist. Check the box when you've got the supporting document saved in the data room.

  • Owner compensation and perks are the biggest add-back for most trades.
  • Related-party items get normalized to market, not just removed.
  • One-time items need a dated event, not a trend.
  • Non-cash and normalization adjustments usually require a QoE memo.

What it returns

Adjusted EBITDA, total add-backs, a per-category subtotal, and a documentation score. A score below 70% usually gets challenged in diligence.

Methodology

How this tool works

Buyers accept adjustments to reported EBITDA when the adjustment is both economically real and well-documented. The add-back builder categorizes adjustments into owner, related-party, one-time, non-cash, and normalization buckets and attaches a documentation checklist to each.

A documentation score shows what share of the required documents have been collected. Expect buyer-side quality-of-earnings (QoE) teams to challenge or remove any add-back scoring under 100%.

Three main-site tools pair well here: the salary normalizer for owner comp, the equipment depreciation model for D&A add-backs, and the seasonal normalizer for LTM normalization. For the full sell-side package, use the sell-side data room checklist.

See also on mainstreetwealth.ai

FAQ

Frequently asked questions

What's a 'good' adjusted EBITDA margin?
For home services, adjusted EBITDA margins typically run 10–20% of revenue. Over 20% without clear structural reasons will attract diligence scrutiny; under 10% signals pricing or productivity issues.
What add-backs do buyers routinely reject?
Unsupported owner personal expenses, 'growth investment' add-backs for marketing, and compensation changes that aren't backed by a payroll register. Also: anything that keeps recurring year after year.
How do I document an add-back?
Attach the source document (payroll register, invoice, lease), a written explanation of why it won't recur, and a tie-out to a specific GL account and period.
Should I include stock-based compensation as an add-back?
Only for larger businesses with real stock-based plans. Most lower middle-market home-services deals have none; where it exists, treat it as a non-cash add-back with clear plan documentation.
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