EBITDA Add-Backs: Examples and Evidence Schedule

What are EBITDA add-backs?

An EBITDA add-back is a proposed adjustment to reported earnings for an item that may not reflect the business’s maintainable operating performance. It is not accepted merely because a seller labels a cost as exceptional: the buyer will usually test whether the item affected the starting EBITDA, whether it is supported, whether it will recur and whether a replacement cost or related income also needs to be reflected.

A defensible adjustment schedule should show five things: where the item appears in the accounts; the period and amount; the evidence; why the item should increase or decrease maintainable earnings; and whether it is proposed, supported, disputed or agreed. Keep reported EBITDA visible and show deductions as clearly as additions.

KBA can review an adjustment schedule alongside the wider valuation information pack. Request a business valuation consultation with the valuation purpose, accounts period and number of proposed adjustments. Do not send accounts, tax identifiers or transaction documents in the initial form; agree a secure transfer method first.

Scope: preparation for UK private-business valuation and sale discussions. Sources checked on 25 October 2026. The examples are illustrative, not a valuation, accounting-policy decision or client case study.

Start from a reconciled number

EBITDA means earnings before interest, tax, depreciation and amortisation. ICAEW’s Completion Mechanisms guidance explains that transaction pricing may use normalised EBITDA, including adjustments for one-off income or costs. It also makes clear that the pricing multiple depends on factors such as risk and earnings sustainability.

First reconcile the starting EBITDA to the relevant accounts and define the period. Keep that reconciliation separate from the proposed adjustments. An expense already excluded from your starting measure cannot be added back again.

Which EBITDA add-backs may be legitimate?

There is no automatic list that turns an expense into an accepted add-back. The question is whether the adjustment helps explain maintainable earnings on the agreed valuation basis. A buyer may accept, reject or revise the amount after due diligence.

Apply this six-point challenge test

• Included: did the item actually affect the reported EBITDA used as the starting point?
• Identified: can it be traced to ledger entries, invoices, contracts and the correct accounting period?
• Non-recurring: is there evidence that the cost or income will not continue after the transaction?
• Complete: have related income, costs in other periods and replacement expenditure also been considered?
• Consistent: has the same treatment been applied across the historical periods presented?
• Not counted elsewhere: is the item absent from the working-capital, debt-like or other price adjustments?

Common examples—and the likely challenge

One-off relocation, dispute or transaction-related costs: these may be proposed when they are separately identifiable and genuinely non-recurring. Include associated recoveries, costs recorded in another period and any continuing replacement cost. Transaction costs may also be considered elsewhere in the enterprise-to-equity value bridge, so double-counting must be avoided.

Owner or director remuneration: do not simply add back the whole amount. Compare the cost already recorded with the realistic ongoing cost of replacing the role, including relevant employment on-costs. The resulting normalisation may increase or decrease EBITDA.

Personal or non-business expenditure: an adjustment needs transaction-level evidence that the amount was included in the starting EBITDA and will not continue. A label in the ledger is not enough if the expense supported the business.

Related-party rent or charges: consider the terms that will apply after completion. Normalising an above-market charge may increase EBITDA; correcting a below-market charge may reduce it.

Closed sites, lost contracts or restructuring: proposed savings need evidence that the action has occurred or is sufficiently committed. Reflect lost revenue, remaining fixed costs and implementation costs rather than presenting the saving alone.

Marketing, recruitment, repairs and capital expenditure: describing spend as discretionary does not automatically make it an add-back. If the business needs the activity to sustain earnings, excluding it may overstate maintainable performance. Capital expenditure is generally outside EBITDA, so it should not be presented as though it were an EBITDA expense.

Non-recurring income: grants, insurance proceeds, gains or other unusual income included in reported EBITDA may require a downward adjustment. A balanced schedule shows deductions as clearly as additions.

Use one row per proposed adjustment

Record the adjustment ID, period, ledger code, description, amount and sign, reported-EBITDA effect, reason, recurring status, replacement cost, related income or costs, source documents, owner and review status. Link the schedule back to the trial balance and keep proposed, supported, disputed and agreed amounts separate. KBA’s business valuation information checklist explains the wider information pack to prepare.

A worked example with adjustments in both directions

Assume reported EBITDA for the year ended 31 December 2025 is £240,000. For this simplified discussion, every item below is already included in that starting figure.

Proposed addition: £18,000. A specific relocation expense is supported by invoices. Assume the parties accept that it will not recur in the earnings period being assessed.

Proposed deduction: £10,000. A non-recurring receipt increased reported EBITDA. Assume the parties agree that it should be excluded from ongoing earnings.

Further deduction: £25,000. Assume a documented replacement-management cost is £25,000 higher than the cost included in the accounts. This reduces the illustrative maintainable earnings rather than increasing them.

Illustrative adjusted EBITDA: £240,000 + £18,000 − £10,000 − £25,000 = £223,000. If a separate £12,000 annual marketing expense is proposed as an add-back but will continue, our example leaves it in the cost base.

These assumed treatments are not rules for accepting those categories. A relocation programme might span several periods, a receipt might reflect ordinary trading, and replacement-management requirements depend on the transaction. Evidence and the agreed purpose drive the conclusion.

Give every adjustment a short evidence record

Identify: assign an adjustment number, ledger account, invoice or other record, date, amount and sign. Show exactly where the item entered reported EBITDA.

Explain: write the reason for the proposed treatment, whether related costs occur in other periods, and what the business will spend instead. Record contrary evidence as well as supporting evidence.

Track: mark each item proposed, supported, disputed or agreed. Keep the unadjusted figure visible so a reviewer can rebuild the calculation without trusting a pasted total.

ICAEW’s Financial Due Diligence guidance describes reconciling management information with financial statements. That discipline is useful here: explain missing year-end adjustments before debating a valuation adjustment.

Build a review-ready adjustment bridge

Do not present only a final adjusted EBITDA total. Start with reported EBITDA, show every proposed line, then separate the amount requested by the seller from the amount supported by evidence and the amount ultimately agreed. This makes rejected additions and newly identified deductions visible.

Bridge the three totals. In this example, reported EBITDA is £240,000. The seller’s initial proposal would be £270,000 after the two requested additions. The review removes the unsupported £12,000 marketing addition and includes the two deductions, producing the same illustrative £223,000 adjusted EBITDA shown above: £240,000 + £18,000 − £10,000 − £25,000.

Keep an issues log beside the numbers. For each disputed line, record the question, evidence requested, owner, due date, latest response and current amount. Freeze the version used for each offer or board discussion so a later change does not silently rewrite the earlier bridge.

Use control totals before sharing. Confirm that the schedule adds back to the trial balance, that each adjustment affects the defined EBITDA period once, and that proposed, supported and agreed columns each reconcile to their own displayed total. Do not overwrite the seller’s original proposal when the review position changes.

ICAEW’s Earn-out Agreements guidance illustrates that a defined adjusted-EBITDA measure may require both additions and deductions. The transaction documents, valuation purpose and evidence still determine the treatment in a particular case.

Do not turn an adjustment into a promised price

A higher earnings figure does not guarantee a higher offer. Buyers may challenge sustainability, the multiple or the wider transaction terms. This exercise supports an earnings discussion; it does not calculate shareholder proceeds or replace professional valuation judgment.

KBA offers business valuation and financial due diligence. For the next stage, see our separate guide to enterprise value and equity value. Request a consultation with recent accounts, your proposed adjustment schedule and the purpose of the valuation.