Add-backs are adjustments to the company valuation that are made to get a fairer result. The types of add-backs that apply may vary on a case-by-case basis depending on the company’s individual circumstances. The most common types of add-backs are:

  1. Non-recurring expenses: These are expenses that occurred in a particular fiscal year but will not occur again in the future. Examples include extraordinary legal costs or restructuring costs.
  2. Owner ‘s Compensation Adjustments : Company owners often receive an unusually high or low salary. The adjustment here could be to adjust the owner’s compensation to a market rate.
  3. Family members and relatives: If family members or relatives are employed in the company and receive above-average salaries, these salaries should be adjusted to the market level.
  4. Rents: If the business owns buildings or equipment and rents them to the owner’s business but does not pay market rents, adjustments should be made to bring the rents in line with market value.
  5. Removal of one-off items: One-off gains or losses that are not part of the core business should be removed. For example, selling assets that are not part of the main business.
  6. Interest on Debt: If the company is paying interest on debt that is above market rates, an adjustment should be made to reduce interest costs to a market rate.
  7. Rentals and Leasing: Adjustments may be made to reflect the financial impact of lease obligations associated with assets such as real estate or equipment.
  8. Changes in Depreciation and Amortization: Depreciation and amortization should be adjusted based on depreciation periods and residual book values to provide a more accurate representation of company value.
  9. Changes in inventory levels: If there are exceptionally high levels of inventory at the time of valuation that affect the value of the business, adjustments should be made.