Why stuffing your add-backs sheet with fake expenses looks sketchy

Buyers absolutely dig into it. Especially if they have any experience. Fake add-backs are one of the first things that get flagged during due diligence.

It's not just sketchy—it can kill a deal. I sold my landscaping company two years ago. My broker warned me that padding add-backs would make buyers suspicious of everything else in the financials. Trust is a big part of these transactions. Once they think you're hiding something, they walk or lowball.

I’ve seen sellers try to add back things like golf memberships and call them 'client entertainment'. Buyers ask for receipts and names. If you can't produce them, the add-back is rejected. And then your credibility takes a hit. Not worth it.

What counts as a legitimate add-back? I'm new to this.

One-time expenses, owner perks that won't continue, non-recurring legal fees. Things that genuinely don't reflect the ongoing operating costs. Not made-up stuff.

Thanks, that's what I figured. My accountant was pretty clear that add-backs need to be defensible. I guess I was just surprised by how many other sellers talk about it like it's a game.

I've been on the buy side for a few acquisitions. When I see an add-back sheet that's full of personal expenses, I immediately assume the seller is either dishonest or doesnt understand their own numbers. Either way, it's a red flag. And it makes the whole process longer because we have to audit every line item.

So buyers actually go through each add-back? That sounds like a lot of work.

It is, but it's necessary. Sellers who inflate add-backs usually end up hurting themselves because the buyer discounts the entire sheet, including the legitimate items. Better to be conservative and transparent.

Exactly. A clean, honest add-bvack sheet signals that you run a tight ship. That's worth more than a few thousand dollars in fake expenses.