Add-backs are particular business expenses that are added back to a company’s profit so as to fairly determine its true profitability.
One major legitimate way a lot of businesses minimise their tax burden is by presenting certain items as expenses on their financial statements. This practise however does not present the true profitability of a business and its valuation thereof when selling it. To determine actual profitability (especially when required for a business sale), financial statements need to be adjusted by adding them back to net income. Such adjustments are called add backs, and can include items like:
Add-backs are keenly scrutinised by the buyer given their inclusion in the profitability of the business to determine its valuation and price at sale.« Back to Glossary Index
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