Claiming an add-back and proving one are two very different things. This fictional case study, a companion to our case study on documented add-backs, compares two Florida businesses to show what happens when a buyer’s due diligence team will not accept the seller’s discretionary expense adjustments.
Both companies are fictional composites used to illustrate a pattern brokers see often during business valuations in Florida.
Palmetto Auto Glass claimed add-backs for above-market owner health insurance, a company vehicle, and a one-time litigation settlement. Every item had paperwork. The buyer’s accountant accepted all $95,000 during due diligence.
Sunview Detailing’s owner claimed $140,000 in add-backs, including undocumented cash tips, family trips labeled as “marketing travel,” and vague meals and entertainment expenses. When the buyer’s accountant asked for support, only $30,000 could be substantiated.
| Metric | Palmetto Auto Glass | Sunview Detailing Co. |
|---|---|---|
| Add-Backs Claimed | $95,000 | $140,000 |
| Add-Backs Accepted by Buyer | $95,000 (100%) | $30,000 (21%) |
| Adjusted SDE Used in Final Offer | $305,000 | $225,000 |
| Result | Closed at asking multiple | Offer cut by $380,000; deal nearly collapsed |
Buyers, especially those using SBA financing, rely on lenders and accountants who require documentation before crediting any add-back to cash flow. Sellers who overreach with vague or unsupported claims do not just lose the disputed amount, they also lose credibility on the legitimate add-backs, which invites even more scrutiny across the entire deal.
Be conservative and specific. Only claim add-backs you can support with receipts, invoices, or payroll records, and be prepared to walk a buyer through each one. A smaller, fully defensible list of add-backs will almost always produce a better outcome than an aggressive list that unravels during the sale process.
For more real-world (fictional) examples of how deal factors affect outcomes, see: Case Study: Cash Sales Gone Wrong, Case Study: Inventory Mistakes That Cost Sellers at Closing, Case Study: Equipment Value vs. Cash Flow Value.