Profits and Add-Backs

As with all businesses, some expenses actually paid by the business are either of a personal nature or are one-off expenses, i.e., an expense that is extraordinary and, in normal trading periods, will not be incurred again. Add-backs normally include private financing costs, owners’ salaries, and depreciation allowances. All financial institutions, including banks, take into account and fully accept items listed as add-backs, providing the add-backs can be verified and are reasonable. An add-back schedule will allow a prospective purchaser and his financial adviser the ability to recognise the actual operating profits of the business before personal expenses and salaries of the business owners.