17 Jul Understanding the Impact of Add-Backs
When Revenue Rocket engages in a buy or sell-side M&A transaction, one of the most asked about topics is add-backs. An add-back is essentially an add-back to the profit of an expense that won’t occur after an M&A transaction is complete. Whether you’re a buyer or a seller, it’s essential to understand what these expenses are and how they impact the business. In turn, you’ll know what kind of valid profit contribution you can expect. You’ll also want to know when to throw out an adjustment when it’s an ongoing expense, or even dig in when an add back brings up costs that make you question the overall health of the business.
Below is a list of some of the add-back categories discussed in this episode:
- Above market owner compensation
- Taxes from above-market compensation
- Entertainment expenses
- Excess offsite corporate meetings/trips
- Management consulting roles
- Above market benefits/contributions
- M&A related expenses
- Social memberships (gold memberships, box seats for professional sports teams…)
- Sales related events/tickets
- Personal travel
- Corporate travel above and beyond “normal”
- Family member compensation
- Auto expenses/vehicle leases
- Meals for personal use (really not eligible anymore with changes in tax laws)
- Employee termination events
- Trade show events
- Legal expenses
- One-time rebates/Issues with bad debt
Please note: Keep in mind, we are discussing this to help enhance valuations. Please consult your accountants and lawyers for financial legal advice.
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