Add-backs explained: how to work out your maintainable earnings.
Add-backs are costs in your accounts that a new owner won't have, so they're added back to your profit to show what the business really earns. Typical examples are depreciation, interest, one working owner's wage and perks, private expenses run through the business, and genuine one-off costs. The result is your maintainable earnings, and it's the figure a buyer applies a multiple to.
Get the add-backs right and the price has a solid base. Get them wrong, in either direction, and you'll price too low or lose buyers once their accountant checks the numbers. This guide covers what counts, what doesn't, and how to set it out.
Start from the right profit figure
Start from net profit before income tax. Company accounts often show "net profit before tax", then "income tax expense", then "net profit after tax". Use the before-tax line, and don't add tax back on top of it as well.
If your accounts only show an after-tax figure, start from that and add the income tax back as the first adjustment. Either way, you should end up at the same place.
Use the latest full financial year, and ideally show the same schedule for the two years before it. Buyers want to see that the earnings are maintainable, not a one-year spike.
What you can add back
1. Depreciation and amortisation
These are accounting entries that spread the cost of equipment and fit-out over time. No cash leaves the business, so they're added back.
2. Interest
Interest on business loans, equipment finance and overdrafts is added back. The buyer will fund the purchase their own way, and their finance costs are their business, not the business's.
3. One working owner's wage and perks
For owner-run businesses, a buyer is paying for the income they will earn by running it. So the wage, superannuation and supported perks of one full-time working owner are added back. Perks include a private vehicle or phone paid by the business, or personal expenses run through it. This measure is called PEBITDA.
It has to be the owner whose role a buyer would take on: usually the one who runs the business day to day.
4. Fees paid to the owners' own entities
Management fees, consulting fees or directors' fees paid to the owners, their family trust or their own company are owner profit, not a cost a buyer inherits. They're added back as part of that one owner's remuneration. Fees paid to unrelated businesses for real services stay as costs.
5. Genuine one-off costs
Costs that won't happen again under a new owner can be added back. Examples include legal fees from a settled dispute, a one-time repair after storm damage, or relocation costs. "One-off" is where buyers push back hardest, so keep the invoice and a short explanation for each.
What you deduct
A market wage for any second working owner
This is the adjustment owners most often miss. If two owners work in the business (often a couple), only one wage is added back. The second owner's job still has to be done after the sale, so a buyer will have to pay someone to do it.
If the second owner is paid less than the market rate for their role and hours, or isn't paid at all, deduct the shortfall. If both owners' drawings are combined in one line of the accounts, you can add the combined amount back, but you must then deduct a full market wage for the second owner's role.
One-off income
The same logic works in reverse. An insurance payout, a government grant, or a gain on selling equipment or a vehicle isn't income a buyer will get again, so it comes off.
Unpaid help
If a family member works in the business for free (doing the books, covering weekends), a buyer will have to pay for that work. Deduct a fair wage for it.
What isn't an add-back
- Normal running costs. Rent, staff wages, repairs and maintenance, insurance and marketing are part of running the business, even if some years cost more than others.
- Cash takings that aren't in the accounts. Buyers won't pay for income they can't verify, and banks won't lend on it. If it's not in the books, it isn't in the price.
- Costs you cut just before the sale. Stopping marketing or skipping maintenance lifts this year's profit but usually hurts next year's. Buyers look for it.
- Estimates without paperwork. "About $10,000 a year of personal spending" won't survive due diligence. Each add-back needs to point to something a buyer can check.
One more to watch: if you (or your super fund, family trust or company) own the premises, a buyer will adjust the rent to a market rent. Rent above market is added back; rent below market, or no rent at all, is deducted. The market rent should be the rent in the lease the buyer will get, so settle it before you set your price.
A worked example
All figures are illustrative, made up for this example, and are not industry data.
Running a café, restaurant or takeaway instead? See the café, restaurant and takeaway guides.
A gift and homewares shop is run through a company owned by a couple. Both work in the shop full-time. Their directors' fees and super are one line in the accounts. The latest year shows a net profit before tax of $48,000.
| Item | Amount |
|---|---|
| Net profit before tax | $48,000 |
| + Depreciation | $12,000 |
| + Interest on the business loan | $6,500 |
| + Directors' fees and super, both owners (combined line) | $122,000 |
| – Market wage and super for the second working owner (full-time shop manager) | –$68,000 |
| + Principal owner's private car costs | $7,000 |
| + Legal costs from a one-off lease dispute | $4,500 |
| – Insurance payout after a storm (one-off income) | –$9,000 |
| Maintainable earnings (PEBITDA) | $123,000 |
If the owners had added back both directors' fees in full and left out the market wage, they'd have shown $191,000. That's $68,000 more earnings than a buyer will actually get. At a multiple of 1.5 to 2 (illustrative), the overstatement would be worth $100,000 or more on the asking price, and a buyer's accountant would find it.
The storm payout matters too. It's real money, but it came once, so it doesn't belong in earnings a buyer is paying for year after year.
How to show add-backs to a buyer
- Lay it out as a schedule, like the table above: start at net profit before tax, list one adjustment per line, and end at maintainable earnings.
- Point every line to evidence: the P&L line, an invoice, a loan statement or the payroll report.
- Show two or three years side by side, using the same add-backs each year, so a buyer can see the trend.
- Keep it reconciled. The schedule has to add up exactly from the accounts to the final figure. A schedule that doesn't reconcile is the first thing a buyer's accountant will question.
- Say who the add-back owner is. State how many owners work in the business and whose remuneration you've added back.
Once you have your maintainable earnings, the next step is choosing the multiple. See What is my business worth? How small businesses are valued in Australia.
Get your add-backs worked out for you
Upload your P&L and AUS Brokers works through your add-backs, from net profit to maintainable earnings. It then applies the multiple range for your industry and size, and checks comparable businesses for sale in your state.
An indicative appraisal only. AUS Brokers doesn't provide valuations, and doesn't act for buyers or sellers. Selling in Victoria? Vic Brokers can sell it for you.
Frequently asked questions
What are add-backs when selling a business?
Add-backs are costs in your accounts that a new owner won't have, such as depreciation, interest, one working owner's wage and perks, and one-off costs. They're added back to net profit before tax to show the business's maintainable earnings.
Can both owners' wages be added back?
No. Only one working owner's wage and perks are added back, because a buyer replaces one owner-operator. If a second owner works in the business, a market wage for their role has to stay in as a cost.
Are management or directors' fees an add-back?
Yes, when they're paid to the owners, their family trust or their own company. They're treated as the one owner-operator's remuneration. Fees paid to unrelated businesses for real services stay as costs.
Can I add back cash takings that aren't in my accounts?
No. Buyers won't pay for income they can't verify, and banks won't lend against it. Only income that appears in your accounts counts toward maintainable earnings.
Is rent an add-back?
Usually not. Rent paid to an unrelated landlord is a normal running cost. The exception is when the owners or their own entity (such as their super fund) own the premises: the rent is adjusted to a market rent, up or down, including when no rent is charged at all.
General information only, not financial, tax or legal advice. Figures in the worked example are illustrative.