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Why the way you prepare add backs can often matter more than the number itself Key Takeaways Introduction Most business owners see add backs as a straightforward way to show higher earnings. Buyers see them as a test of credibility. The gap between those two perspectives often determines whether a deal closes at the expected price—or not. Why It Matters Add backs directly influence EBITDA, and EBITDA drives valuation. But buyers don’t value optimism; they value risk-adjusted earnings they believe will continue after the owner exits. When add backs feel aggressive, inconsistent, or poorly explained, buyers don’t just remove them—they begin questioning everything else in the financials. That skepticism shows up quickly in lower offers, earnout-heavy structures, or last-minute price cuts. Owners who treat add backs casually often assume the debate will be settled later. In reality, first impressions during CIM review and early diligence shape buyer psychology. Once credibility erodes, it is difficult to recover. What Add Backs Really Are (and Aren’t) Add backs are meant to normalize earnings, not inflate them. They exist to remove expenses that will not recur for a new owner or that are clearly non-operational. They are not a place to park every cost an owner dislikes or hopes a buyer will overlook. Buyers expect add backs to explain how the business truly performs on a go-forward basis without the current owner’s unique situation. How Buyers Actually Evaluate Add BacksBuyers rarely argue about accounting theory. They ask simpler questions: Would this expense exist if we owned the business? Is there proof it won’t come back? Is it material enough to matter? Add backs that require long explanations, subjective judgments, or verbal assurances are discounted quickly. The buyer’s job is to price risk, and anything unclear is treated as risk. Common Owner Blind SpotsPersonal expenses are the obvious issue, but not the most damaging one. Owner compensation is often misjudged, especially when the owner performs multiple roles. “One-time” expenses that appear more than once raise immediate flags. Deferred maintenance, under-market rent, or temporary labor fixes can also backfire when buyers realize normalized earnings may actually be lower, not higher. How Add Backs Impact Real DealsQuestionable add backs rarely just disappear quietly. They reduce confidence in EBITDA, which leads buyers to lower the multiple, demand holdbacks, or shift value into earnouts tied to future performance. Even when headline price looks acceptable, deal terms become more restrictive. Clean add backs, by contrast, allow buyers to underwrite faster and compete harder. When Add Backs Truly Support Higher ValuationThe strongest add backs are boring. They are consistent across years, tied to clear documentation, and easy for a buyer to model. When add backs are prepared with a buyer’s lens—supported, conservative, and repeatable—they do what owners expect: protect valuation and reduce friction. Optional Checklist — Buyer-Acceptable Add Backs Final Insight Add backs are less about math and more about trust. Buyers don’t pay premiums for creativity; they pay for clarity. The owners who get the best outcomes treat add backs as part of exit preparation, not a negotiation tactic. If you are considering a sale, the right time to pressure-test your add backs is before a buyer sees them. Schedule a confidential review to assess how your earnings will be viewed—and valued—by the market.

If you own a business and are thinking about whether 2026 might be the right time to sell, there is reason for cautious optimism—along with a clear mandate to prepare early. After years of volatility, major dealmaking surveys from firms such as Deloitte, EY, S&P Global, DC Advisory, and BDO point toward a more favorable condition ahead arising from stabilizing interest rates, renewed buyer appetite, and narrowing valuation gaps.  However, the bar for quality is rising, diligence is intensifying, and owners who wait until the last minute to prepare will find themselves at a disadvantage. As someone who spent decades as a CEO completing acquisitions—and now advises owners as a business broker and provider of strategic business consulting services—I’ve seen this dynamic play out many times. Markets shift, but preparation always wins. Below are the trends shaping 2026 and the concrete steps that will determine whether your exit creates optionality or disappointment. A Market Turning Upward: What the Data Shows for 2026 Financing Is Improving—and Buyers Are Reactivating Across multiple surveys, dealmakers expect 2026 to be a year of renewed momentum. Lower interest rates mean capital becomes cheaper for strategic acquirers and private equity firms, helping unlock transactions that stalled over the last two years. When capital loosens, so does buyer activity—especially for well-run companies. Valuation Gaps Are Narrowing Surveys by both Deloitte and EY both highlight a key shift: buyers and sellers are finally aligning on price expectations. The premium will increasingly go to companies with clean financials, documented processes, and defensible EBITDA. Buyers Are More Selective—Not Less Even with improving sentiment, the intensity of due diligence is rising. Firms like PBMares and Prairie Capital note that buyers are digging deeper into normalized financials, customer concentration, management depth, and working-capital discipline. Deals aren’t falling apart because of the market—they’re falling apart because the business did not prepare for the scrutiny. Strategic Buyers Are Accelerating “Tuck-In” Acquisitions S&P Global and DC Advisory point to ongoing consolidation across sectors including business services, healthcare, specialty manufacturing, and home services. This matters for you because strategic buyers pay premiums when:• your company fills a capability gap• your customers expand their footprint• your geography or workforce accelerates their growth If your business clearly demonstrates strategic synergies, valuation multiples improve. Positioning Your Business for a Better Outcome A changing market creates opportunity, but opportunity only rewards the prepared. If you want buyers to see your company as a strategic asset rather than a project to fix, now is the time to strengthen the fundamentals that drive confidence, valuation, and competitive tension. 1. Professionalize Financial Reporting If you want to attract serious buyers—including private equity and strategic acquirers—you need financials that withstand scrutiny. That means: Businesses with sloppy books suffer valuation haircuts. Businesses with transparent, defensible numbers often command a premium. 2. Reduce Owner Dependence Many small and mid-sized companies remain overly reliant on the founder. Buyers view this as a red flag. Begin shifting responsibilities now. Document roles, elevate your second-tier leadership, and demonstrate that the company can operate effectively without you.  This is perhaps the single most important step you can take to sell your business successfully. 3. Strengthen Your Strategic Buyer Narrative Your business is worth more when buyers can instantly see the fit. That requires intentional positioning: A strong narrative is not marketing—it’s valuation leverage. 4. Prepare a Diligence-Ready Company Early Deloitte’s global dealmaker surveys show that poorly prepared companies experience the highest failure rates. Create a data room early and keep it continuously updated. Include contracts, HR files, compliance documentation, KPIs, SOPs, and customer information. When diligence goes smoothly, credibility—and enterprise value—goes up. 5. Mitigate Concentration and Operational Risks Customer concentration, supplier dependence, inconsistent margins, and outdated systems can all scare buyers away or justify a lower multiple. Start addressing these now. Even incremental improvements strengthen your negotiation position. For key insights on where your business stands on these critical factors, take the Value Builder Survey and receive your Value Builder Score (VBS).  The VBS report ranks your business, compared to other similar businesses, on 8 key drivers of enterprise value.   It will give you a good roadmap for plotting your preparation strategy.  You can access the VBS survey here: Value Builder Score Survey Timing Matters But Preparation Matters More If you’re evaluating whether to sell a business in the next 12–24 months, the data suggests the environment may become increasingly favorable—but only for companies that meet the higher bar buyers expect. Preparing early is no longer optional; it is a strategic investment that influences valuation, deal structure, and even your ability to close. This is where the right advisory team makes a measurable difference. Whether you’re searching for a business coach seeking experienced business consulting services, or partnering with a seasoned business broker, expertise matters. You only get one chance to sell your company—get the preparation right. The companies that achieve exceptional outcomes in 2026 will be the ones whose owners start preparing now, while the window is widening and buyer momentum is building.

Everyone’s talking about growth in manufacturing due to reshoring, automation and AI driven productivity. Almost no one’s talking about exit readiness in these companies. Yet the biggest wins in today’s M&A market aren’t going to the companies with the highest revenue — they’re going to the ones that are best prepared to sell. Here’s what I’m seeing across recent manufacturing deals 👇 1️⃣ The Real Drivers of a Premium Valuation The “average” manufacturing deal trades around 5–8x EBITDA, but the best-run companies are getting 8–10x — even higher.  What separates them? Five value drivers: ✅ Process efficiency: Buyers pay more for automation, data integration, and “lights-off” manufacturing that runs with minimal human labor.✅ Revenue quality: Multi-year supply contracts or recurring consumable sales reduce risk and boost value.✅ Customer resilience: If one customer accounts for 30% of revenue, your multiple drops fast. Diversify early.✅ Competitive moat: Patents, specialized processes, or proprietary know-how protect margins and attract strategic buyers.✅ Growth capacity: Buyers pay for what they can scale — underutilized capacity, new markets, or product extensions all count. Efficiency, predictability, and defensibility create valuation lift — not just revenue size. 2️⃣ The New Power Players: Private Equity Private equity firms have become the dominant buyers in manufacturing in recent years.  Most aren’t buying standalone “platform” companies — they’re adding “bolt-ons” to existing platforms.  They’re looking for businesses that fill a gap — new geography, new capability, or new customer base. If you’re a potential bolt-on, here’s how to stand out: ✅ Research which PE firms already own companies like yours.✅ Show how your business complements theirs — efficiency, relationships, or market access.✅ Be ready for deep due diligence. Organized financials, equipment logs, and customer data build trust.✅ Map out the next-stage growth story — not just what you’ve done, but what you enable. Private equity buyers pay for clarity and scalability. Make it easy for them to see both. 3️⃣ Supply Chain Risk Is Now a Valuation Lever Buyers used to skim over supply chain details.  Not anymore. After the last few years, they’re laser-focused on sourcing risk — especially overseas dependence or single-source suppliers. Here’s what strong sellers are doing: ✅ Building redundancy — at least two qualified suppliers per critical input.✅ Mapping their supply chain visually to show resilience.✅ Documenting long-term supplier relationships and performance metrics.✅ Creating continuity plans that address disruptions before they happen. You don’t have to be disruption-proof — but you do need to prove you can adapt fast. 🏁 Final Thought If you’re considering a sale in the next few years, the best time to prepare was yesterday.The second-best time is now. At VAP/Raincatcher, we help manufacturing owners identify the 3–5 changes that can most increase valuation within 12 months.

When buyers say a business “depends too much on the owner,” they aren’t questioning work ethic—they’re identifying risk, and risk erodes value. No matter how strong the numbers look, a company that can’t function smoothly without the owner at the center will struggle to attract serious buyers or command a premium price. Why Owner Dependency Kills Value In most purchase transactions, buyers primarily evaluate two things: profitability and transferability. Profitability tells them how much the business earns today. Transferability tells them whether those earnings will continue after the owner steps away. A company whose revenue, relationships, and decisions all flow through one individual has weak transferability. Buyers worry that when the owner exits, customers may leave, employees may lose direction, and the company’s rhythm may falter. That uncertainty usually translates to fewer bidders, longer negotiations, and lower valuations. We offer a free tool that we offer, called the Value Builder Score (VBS),  helps identify the most common value gaps we see in owner-led businesses. Owners who built their companies from the ground up often become the hub of every wheel—sales, pricing, operations, even HR. It’s understandable, but it’s not sustainable.  To get your company’s VBS, click here. The Financial and Deal Impact Dependency issues almost always surface during diligence. Sophisticated buyers notice immediately when the owner controls key accounts, personally closes deals, or signs every check. More often than not, this will result  in more contingencies, longer transition periods, and performance-based earnouts instead of clean cash closings.  Buyers know they’ll need to hire or develop new leadership, document systems, and invest time in stabilizing relationships—all costs that get factored into their offer. Reducing Owner Dependency 1. Document and DelegateStart by getting what’s in your head onto paper—or into systems. Document core processes: sales steps, client onboarding, service delivery, reporting. Then assign ownership. Empower trusted team members to make decisions, even small ones. The best test of independence is whether the business can run smoothly when you take a week off. 2. Build Structural IndependenceInstall systems that institutionalize best practices. CRMs, project management tools, good training and consistent reporting all help ensure visibility without micromanagement. Formalize roles, create standard operating procedures, and build a cadence of team accountability meetings. The goal is not to make yourself unnecessary overnight, but to make yourself optional in day-to-day execution. 3. Transfer Relationship OwnershipBuyers pay premiums for businesses with diversified customer and supplier relationships. Begin transitioning key accounts to other leaders. Introduce senior staff to your most important clients and vendors. Build team-based relationships so loyalty transfers to the company, not just the founder. 4. Strengthen the Second Layer of LeadershipThe presence of a capable management team reassures buyers that the business has continuity. Invest in developing mid-level managers who can think strategically and execute operationally. Even small companies can benefit from a “shadow leadership” approach, where rising team members participate in higher-level discussions and decision-making. Reducing owner dependency doesn’t just make your business more sellable—it makes it stronger today. When processes, relationships, and decisions are distributed, performance improves, stress declines, and enterprise value grows. The first step is understanding where you stand take the Value Builder Score Survey.  The resulting report provides a clear, data-backed assessment of your company’s dependency risks and practical steps to increase transferable value as well as providing insights into how your business compares to other similar companies. Schedule a confidential consultation to see how your business scores—and what you can do now to build a company that runs without you.

I’ve seen more than one deal nearly fall apart when the buyer’s SBA lender started asking tough questions late in the process. Sellers who thought they were weeks away from closing suddenly faced landlord disputes, paperwork delays, or rigid SBA rules they’d never heard of. If you’re selling your business, understanding how SBA financing works can save you from those surprises. Before you decide whether to accept an offer from an SBA-financed buyer, it’s important to understand both the upside and the potential pitfalls. Advantages of Selling to an SBA-Financed Buyer A Larger Pool of Buyers Many individuals and first-time entrepreneurs rely on SBA loans because they don’t have the personal capital or institutional backing to pay cash. Accepting SBA-financed buyers increases the pool of potential acquirers, which can mean stronger demand for your business. More Cash at Closing Unlike pure seller financing arrangements, SBA loans allow you to receive most — if not all — of the purchase price in cash at closing. This reduces your exposure to collection risk and accelerates your payday. Government-Backed Stability Because the loan is partially guaranteed by the SBA, lenders are more comfortable extending credit. This backing gives buyers confidence and can lead to more secure closings compared to deals with weaker financing sources. Motivated Buyers The SBA loan process is not for the faint of heart. Buyers who commit to it are often highly motivated and willing to endure the paperwork, personal guarantees, and waiting periods. That motivation can translate into a serious, qualified buyer for your business. Disadvantages of Selling to an SBA-Financed Buyer Longer Timelines and Deal Risk SBA loans involve multiple layers of approval — bank underwriting, SBA guidelines, and often third-party reviews. This can add weeks or months to the process. Deals sometimes collapse late in diligence if the loan is denied, leaving the seller with wasted time and no closing. Heavy Documentation Burden Lenders will scrutinize financial statements, tax returns, contracts, and other records in extreme detail. If your books are disorganized or incomplete, expect delays. For sellers, this means you must be prepared to deliver lender-ready documentation upfront. Lease Subordination Requirement SBA lenders often require landlords to sign a lease subordination agreement, acknowledging the lender’s lien has priority over the lease. Many landlords — especially those with their own mortgage lenders — resist this. If not addressed early, it can kill a deal. Lease Term Modification In addition to requiring subordination, SBA lenders often insist that the lease on your facility be extended to match the full term of the loan — sometimes 10 years or more. This can be a major stumbling block if your landlord is unwilling to commit to such a long extension, or if you as the seller know the business won’t need that location long-term. Negotiating this requirement early is critical, as it has derailed many otherwise solid deals. Seller Note Subordination If a portion of the deal includes seller financing, the SBA requires that note to be subordinate to the bank’s loan.  Certain types of Seller notes prohibit principal or interest payments until after the loan is paid off.  This limits deal flexibility and can affect the seller’s ability to negotiate favorable repayment terms. Limits on Seller Transition Under SBA rules, the seller cannot remain as an employee of the business for more than 12 months post-sale. This restriction makes longer transition periods — sometimes essential in owner-dependent businesses — impossible under SBA financing. 100% Sale Requirement SBA financing generally requires a complete change of ownership. Sellers cannot retain equity in the company as part of a phased buyout or minority rollover. If your exit strategy involves retaining a stake or transitioning out gradually, SBA financing will not allow it. How Sellers Can Improve Their Odds of a Successful SBA Deal Prepare Clean Financials Ensure your tax returns, P&Ls, and balance sheets are consistent and accurate. Work with your CPA or advisor to resolve discrepancies before going to market. Address Lease Issues Early Talk with your landlord well before a deal is underway. If they’re unwilling to sign a subordination agreement, you’ll want to know that before wasting time with an SBA buyer. Standardize Key Contracts SBA lenders review customer, vendor, and franchise agreements closely. If your contracts are inconsistent, expired, or informal (“handshake deals”), that can spook a lender. Before you sell, update and standardize critical contracts so they’re lender-ready. Clean Up Compliance & Licensing The SBA requires proof that the business is operating legally and with all required licenses. Even small gaps — an expired occupational license, outdated insurance certificate, or missing environmental permit — can delay approval. Doing a compliance checkup in advance avoids last-minute surprises. Organize Corporate Records Buyers and lenders both need to see clear ownership documentation, meeting minutes (if applicable), and evidence that the company is in good standing. Having your corporate books tidy helps the lender move faster and signals professionalism. SBA financing is a double-edged sword for sellers. On the one hand, it brings more buyers to the table and increases the likelihood of receiving cash at closing. On the other, it introduces longer timelines, stricter requirements, and rigid rules that limit flexibility in how a deal is structured. If you’re considering selling your business, don’t dismiss SBA-financed buyers — but go in with your eyes open. Preparation, clean records, and experienced guidance can turn SBA financing from a roadblock into a reliable path to closing. For more insight into the steps you should be taking now to help ensure a successful exit down the road, feel free to schedule a brief call with me using this link: https://calendly.com/mikelevison

When it comes time to sell your business, one of the most important decisions you’ll face is how the deal is structured and one of the most important issues are the impact to your net proceeds between a stock sale and an asset sale.  At first glance, this might feel like legal or accounting jargon, but the choice can have a huge impact. Understanding the differences will help you enter negotiations prepared and avoid surprises down the road. What’s the Difference? In plain terms, the difference comes down to what the buyer is actually purchasing: Think of it like this: Pros and Cons for Sellers Here’s a quick comparison of how the two approaches typically play out from a seller’s perspective: Factor Asset Sale Stock Sale Liabilities Seller often retains liabilities unless specifically assumed by buyer. Buyer takes over all liabilities of the business. Taxes Portions of the sale may be taxed as ordinary income (e.g., depreciation recapture), which can increase tax burden. Generally taxed at long-term capital gains rates, often more favorable. Simplicity Requires re-titling of assets, assigning contracts, and transferring licenses. Cleaner and often simpler; ownership transfers in one step. Buyer Appeal Buyers prefer asset sales (clean slate, can pick and choose what to take). Less attractive to buyers; they assume risks and liabilities. Seller’s Net Proceeds Often lower due to tax treatment. Usually higher after taxes. Tax Implications at a Glance For most business owners, the tax consequences are the biggest difference between an asset sale and a stock sale. You don’t need to be a tax expert to understand this issue can significantly change what ends up in your pocket after the sale. A Simple Example Assume you sell your business for $5 million. Big difference!! Why Buyers Prefer Asset Deals If stock sales are usually better for sellers, why do so many deals end up as asset sales? The short answer: buyers have the upper hand in preferences and here is why: Key Takeaways Every business is different. Factors like your corporate structure (C-Corp vs. S-Corp vs. LLC), your industry, and the specific buyer’s goals all play into the final outcome. If you’re considering selling, let’s talk about whether an asset sale or stock sale makes the most sense for your situation. Contact us today to schedule a confidential discussion.

If you’re like most business owners, you’ve spent years sweating over growth, margins, and customers—but probably not over working capital adjustments. And why would you? The phrase alone sounds like something only your accountant should worry about. Yet, when it comes time to sell your business, this little clause in the purchase agreement can mean hundreds of thousands—or even millions—swept off the closing check. I’ve seen it time and again: owners focus on the headline multiple and walk into due diligence only to discover that the real battleground is buried in the fine print. Let’s unpack how this works, why it catches so many sellers off guard, and what you can do to protect yourself. What Is a Working Capital Adjustment? In plain English, working capital is your short-term financial plumbing: receivables, payables, and inventory. Buyers expect that when they purchase your business, it will come with enough “plumbing” to keep water flowing on day one. When you sell your business “cash-free, debt-free,” that doesn’t mean you get to scoop up all the receivables and inventory on your way out the door. Buyers want a normal level of working capital delivered with the business. This is often referred to as the working capital peg.  The peg is essentially a target: the agreed-upon amount of working capital that will be in the business at closing. If actual working capital falls short of the peg, the purchase price gets reduced. If it’s higher, you may actually pocket a little more (though in practice, buyers structure things conservatively to avoid paying extra). Most owners don’t fully understand this concept until late in diligence. And by then, their leverage is shrinking. A common reaction is…“Wait a minute—I’ve already collected my receivables before closing. Why am I getting dinged for not leaving more working capital behind?” From the seller’s point of view, it feels like paying twice. From the buyer’s standpoint, it’s simply ensuring they don’t have to inject more cash on day one. Cash accounting adds fuel to the fire. Because revenues and expenses are recorded when money changes hands—not when they’re earned or incurred—cash-basis statements often disguise timing mismatches. That makes it harder to see the true level of working capital, which leads to bigger surprises when the buyer’s accountants “normalize” the numbers. How the Peg Gets Calculated Most deals set the peg using a trailing twelve-month average of working capital. Simple enough on paper, but messy in practice. Seasonal businesses (retail, agriculture, HVAC contractors) often get tripped up because the peg doesn’t reflect the ebb and flow of busy versus slow months.  High-growth companies can be penalized when historical averages don’t keep pace with today’s higher requirements.  Distribution and project-based businesses tend to have lumpier inventory or receivables, which make defining “normal” even more contentious. Buyers, of course, prefer conservative assumptions—because it protects them. Sellers often feel squeezed because the formula doesn’t reflect the actual rhythm of the business. The Real Impact on Value Let’s take a look at how this might play out.   Suppose you’ve agreed to sell your company for $20 million. You assume you’ll walk away with, well, $20 million. But the purchase agreement sets a $3 million peg. At closing, actual working capital comes in at $2 million. Suddenly, you’re looking at $19 million instead of $20 million. One million dollars evaporates—not because of EBITDA, not because of the multiple, but because of the mechanics. For many business owners, that could be the equivalent of years of distributions gone in a blink. And remember: buyers don’t see this as a “takeaway.” They see it as protecting themselves from having to inject liquidity immediately after the deal. How to Get Ahead of It A little foresight saves a lot of headache.  Work with your advisor to form a view on the issue early. Don’t wait until the purchase agreement. A good advisor should be able to help you with all of these things. Working capital adjustments rarely make the headlines of a deal. But for the business owner about to sell a business, they can have an outsized effect on the final check you take home. Prepare, plan, and get expert help. Whether you call it business consulting services or seasoned deal-making, this is one of those times when professional guidance pays for itself.

When it comes time to sell your business, there’s one detail that can quietly sabotage the deal—or at least the price you hoped to get. It’s not your revenue. It’s not your growth story. It’s your accounting method.Many small and medium-sized business owners manage their financials using the cash method of accounting. It’s simple, intuitive, and easier to manage for tax purposes. But when it comes to selling the business—and getting top dollar—the cash method can create challenges, because it often fails to reflect the economic reality of your business. Cash vs. Accrual: A Quick RefresherHere’s the core difference: At first glance, the difference may seem academic. But when a buyer evaluates your company, they’re not just looking at your bank balance. They’re trying to understand how your business actually performs over time and that’s where cash accounting can create distortions.As an example, I once worked with a professional services firm doing $3.8 million in annual revenue. On paper, their cash-based financials showed strong profits—especially in Q2 and Q4. But when the buyer’s CPA dug into the details, they discovered the company was pre-billing clients for future work (and recognizing it as revenue) and but delaying payment to contractors until later period when the work was actually done. The result was that profits were artificially boosted in some periods and depressed in others. After restating the financials on an accrual basis, EBITDA came in 18% lower than originally presented. The buyer adjusted their offer downward—and restructured it to include an earnout. The deal eventually closed, but the seller left money on the table and endured months of renegotiation and risk. Why the Timing Mismatch Matters Cash accounting does not always conform to one of the most basic principles of financial reporting: matching revenues with the expenses that generated them. Here’s how this mismatch can play out: These mismatches can make your company appear erratic or unpredictable to a potential buyer, even if your operations are steady. Impact on Business Valuation Buyers typically value businesses based on metrics like EBITDA (or Seller Discretionary Earnings), revenue trends, and working capital. These indicators are highly dependent on timing. When your financials are prepared on a cash basis: If you don’t address these issues up front, it is likely that the buyers will. A cash-accounting business will often necessitate a formal QoE study—either commissioned by the seller to preempt buyer concerns, or by the buyer as a condition of proceeding. That delays the process, increases transaction costs, and heightens the risk that the deal falls apart during diligence. The bottom line….cash accounting muddies the waters. Accrual accounting brings clarity—and with it, buyer confidence. What Buyers Want (and Expect) Serious buyers—particularly private equity groups or strategic acquirers—expect accrual-based financials. It’s the standard in due diligence. If you’re operating on a cash basis, you should anticipate: An experienced business broker or advisor can help you navigate this process—but they can’t change the underlying reality of your numbers. Making the Transition If your business currently uses cash accounting, shifting to accrual doesn’t have to be overwhelming—but it does require planning and the knowledge of a good CPA. The first step is to identify key accrual elements such as accounts receivable, accounts payable, deferred revenue, and prepaid expenses. From there, you’ll want to generate accrual-adjusted financial statements for at least the past two to three years. It may also be helpful to invest in accounting software that supports accrual tracking if you don’t already use one. Finally, consider whether a sell-side quality of earnings report makes sense as part of your preparation—it can strengthen buyer confidence, streamline diligence, and put you in control of the narrative. Getting these pieces in place early will save time, reduce surprises, and help you present a clear, credible financial story when it matters most.

Want to see how your add-backs measure up? Download our free Add-Back Assessment Guide to learn what buyers accept, what they challenge — and how to prepare for both. When it’s time to sell your business, your EBITDA becomes the cornerstone of your valuation. But here’s the catch: the number buyers care about isn’t just what your financials report — it’s what your normalized, adjusted, and defensible EBITDA says about the true earning power of your company. That’s where add-backs come in. Handled strategically, add-backs can increase your enterprise value by hundreds of thousands — even millions — of dollars. Mishandled, they can erode buyer trust, inflate expectations, or derail a deal altogether. In this post, we’ll unpack what experienced buyers really look for, where sellers often overreach, and how to prepare your business so every dollar of adjusted earnings counts. What Are Add-Backs — and Why Do They Matter? Add-backs are adjustments made to your company’s earnings to reflect a more accurate picture of its ongoing profitability. These adjustments are intended to exclude expenses that are not truly part of the future operating reality a buyer will inherit. Strategically applied, they: But not all add-backs are created equal — and the most successful sellers know the difference between acceptable normalization and wishful thinking. The Primary Categories of Add-Backs Legitimate add-backs typically fall into a few categories: These categories are only as strong as their documentation and rationale. Which brings us to the key issues. Legitimate Add-Backs vs. Wishful Thinking Here’s where experienced buyers sharpen their pencils. Claiming an add-back isn’t the same as getting it accepted. Buyers — especially private equity groups and sophisticated strategic acquirers — will scrutinize every adjustment and ask: Is this expense truly non-recurring, non-operational, and non-essential to the business going forward? Some common areas where you can expect push back from a savvy buyer: Add-backs that can’t be supported with clean documentation and logic often become negotiation points that reduce purchase price or increase holdbacks. Worst case? They signal a lack of financial rigor that can scare away buyers. Add-Backs Are Negotiated — Not Dictated A critical mindset shift: you don’t “declare” add-backs — you defend them. Buyers don’t take these adjustments at face value. They’ll ask for: If you can’t explain and document each one, it won’t survive diligence — or won’t hold up in valuation. Preparing Your Add-Backs: Do It Early, Do It Right The most credible add-backs are the ones planned, tracked, and justified well in advance of a sale. If you’re even 12–24 months out from an exit, start now: Also consider a sell-side Quality of Earnings (QoE) report. A professionally prepared QoE not only strengthens your case with buyers — it also filters out weak or questionable adjustments before they become deal breakers. Add-Backs Are a Valuation Lever — Use Them Wisely Done right, add-backs tell a compelling story of sustainable earnings and operational efficiency. Done poorly, they raise red flags that stall or kill deals. If you’re planning to sell, work with an experienced business broker or investment banking advisor who understands not just how to identify legitimate add-backs, but how to build the documentation and narrative that gets them accepted. Want help assessing the add-backs in your business? Contact us — we’ll help you separate fact from fiction and build a valuation that sticks. Want to see how your add-backs measure up? Download our free Add-Back Assessment Guide to learn what buyers accept, what they challenge — and how to prepare for both.