Earnings, SDE and add-backs
How to tell whether the profit a seller shows you is real.
- Add-backs examples: 30 common ones, rated by how well they hold upThirty common add-backs examples in small business sales, rated solid, shaky or unsupported, with the evidence that would change each rating.
- Add-backs to EBITDA: how adjusted EBITDA is built and testedHow add-backs turn EBITDA into adjusted EBITDA, which adjustments hold up in a QoE, and why run-rate and pro forma add-backs deserve suspicion.
- Add-backs: which ones hold up when you buy a businessWhat business add-backs are, which ones survive a lender's review, the evidence each needs, and how to rate them solid, shaky or unsupported.
- Buying a cash business: what to do when the seller says the real profit is higherBuying a cash-heavy business: why you shouldn't pay for unreported income, why lenders won't count it, and how to test cash revenue with other evidence.
- How to read a profit and loss statement when you're buying a businessA plain-English walkthrough of a profit and loss statement for business buyers: revenue, COGS, gross margin, expenses, and what to compare year to year.
- Owner salary add-back: getting owner pay right in SDEHow to treat the owner's salary when calculating SDE: adding back one owner, payroll taxes and benefits, two working owners, and replacement salaries.
- Proof of cash: checking that a seller's revenue really reached the bankA proof of cash reconciles bank deposits to the revenue a seller reports, month by month. How to do one, reconciling items, and red flags.
- Quality of earnings report for a small business acquisition: do you need one?When a buyer needs a quality of earnings report for a small business acquisition, what it covers, SBA's $3M rule, and buyer-side options below that.
- SDE vs EBITDA: what's the difference when you buy a business?SDE vs EBITDA: how they differ, when each is used to price a business, how to convert one to the other, and which one lenders use for coverage.
- Seller's discretionary earnings (SDE): what it means and how buyers test itWhat seller's discretionary earnings means, how SDE is calculated from a tax return, which add-backs belong in it, and how lenders and buyers test it.
- Tax returns vs profit and loss: why they differ and which to trustWhy a seller's P&L doesn't match the tax return, cash vs accrual differences, which one lenders rely on, and how to reconcile the two before you buy.