EBITDA Add-Backs Verification Checklist for Business Buyers in Australia

An EBITDA add-backs checklist for business buyers in Australia is a structured verification tool that helps you interrogate every normalisation adjustment a seller presents before you accept their asking price. Sellers adjust their reported profit upward using add-backs — personal expenses, above-market salaries, one-off legal bills — and some of those adjustments are legitimate. Others aren't. This checklist tells you which documents to request and what questions to ask for each category.

The core problem with add-backs is that they're presented by the seller's accountant, whose job is to show the business in the best possible light. As a buyer, you're working with a summary schedule — often a single page — that represents claims worth tens of thousands of dollars in purchase price per line item. A 3x multiple means a $30,000 add-back inflates the price by $90,000. That's not a rounding error.

I've written a full explainer on this in my guide to EBITDA add-backs when buying a business, which covers what's legitimate, what raises red flags, and the specific add-back patterns that appear in Australian trades businesses. This checklist is the working document to use alongside that article — one item per add-back, run through it systematically before you agree to a price.

The Three Things That Tell You More Than the Add-Back Schedule

Before getting into the checklist, three quick principles worth keeping in mind:

Get behind the summary. The normalised P&L is a finished document. You need the source invoices, payroll records, and bank statements for each add-back. Not the schedule — the actual evidence. If a seller can't produce them, that add-back doesn't exist until they can.

Check for patterns, not just individual items. A legitimately one-off item looks different from a pattern of "one-off" items that appears every year. Three years of accounts side by side is the minimum. Five years is better (a seller I looked at recently had "one-off equipment repairs" in four consecutive years — different equipment each time, always $20,000 to $40,000, always added back).

Normalise both directions. Add-backs usually go up — seller adds items back to increase profit. But occasionally sellers set up non-arm's length arrangements to reduce profit before a sale (paying above-market rent to a related entity, for example). Check that rent and related-party costs are at market rates — not just the salary.

These principles apply across the full EBITDA normalisation checklist process. This checklist is specifically focused on the add-back interrogation step.

For the broader financial verification process, also see the financial red flags checklist and the quality of earnings checklist.

This is Module 4 of the Playbook. The full module covers valuation methodology, working capital adjustments, goodwill, and how multiples are applied — add-backs are step one.

EBITDA Add-Backs Verification Checklist for Business Buyers

Use this checklist for each add-back presented in the seller's normalised accounts. Complete one column per add-back category. All items require supporting documentation before accepting the adjustment.

Phase 1: Owner/Operator Salary Add-Backs

The seller adjusts their own salary to a market rate, arguing the difference represents "true" earnings. This is the most common add-back and one of the most frequently manipulated.

Identify the claimed add-back amount. What is the seller saying the market rate is? What are they currently paying themselves? What is the stated difference being added back?
Verify actual salary paid. Request payroll records and super contribution statements (ATO records are hard to alter). Confirm what was actually paid, not what the summary says.
Benchmark market replacement salary. Get two to three independent data points — Seek salary data for a comparable general manager or operations manager role in the same geography and industry. Don't accept the seller's comparable; get your own. Ask a recruiter if you have one.
Consider whether the role would actually be replaced. If you plan to work in the business yourself, the replacement cost is your own time. If you plan to hire a manager, you need a real quote — not an estimate. Factor superannuation (currently 11.5%), leave loading, and any tools/vehicle allowance into the replacement cost.
Check spouse or family member on payroll. If a family member appears on payroll, ask what they actually do. Request their employment contract, any timesheets or task records, and confirm whether that role would need to be filled under new ownership. An add-back for a spouse who genuinely did admin work is fine. An add-back for a spouse who wasn't doing much is a gift to the seller.
Red flag check: Is the add-back disproportionately large in the final year? If the owner dramatically reduced their salary in year three versus years one and two, ask why.

Phase 2: Personal Expenses Run Through the Business

This is common in privately-held Australian businesses and the ATO pursues it (which means sellers usually know exactly what they've been doing and can itemise it).

Motor vehicle expenses. Request the full motor vehicle expense breakdown for each year. Ask which vehicles are personal versus work-only. Request fuel receipts, log books (if maintained), and registration records. Note: in a single-operator trades business, a personal vehicle often runs through the company. The add-back is legitimate but requires documentation.
Mobile phone and internet. Minor, but check whether family members' plans are included. Not worth fighting over, but worth knowing.
Travel and entertainment. Request itemised expenses. "Client entertainment" in a trades business that doesn't do client entertainment is worth questioning. Overseas travel is almost never a legitimate operating expense for a small trades business.
Insurance. Confirm that all insurance costs in the accounts are business-related (public liability, professional indemnity, workers comp, tool insurance). Personal life insurance or income protection run through the business is a legitimate add-back.
Depreciation on personal assets. If a personal vehicle, boat, or caravan has been depreciated through the business, the depreciation charge is an add-back. Get the asset register and match depreciation charges to actual business assets.
Other personal add-backs. Ask the seller's accountant to provide a full list of personal expenses run through the business for each year. This is a standard request — if they resist, that's a signal.

Phase 3: Non-Arm's Length Transactions

These require particular care because they can work in both directions — artificially inflating or deflating profit.

Premises rent. If the seller owns the building and the business pays rent to them, confirm the rent is at market rate. Get at least two comparable lease quotes for similar premises in the same area. If rent is below market, the add-back (to normalise rent upward) understates your future occupancy cost. If rent is above market, the seller may have been extracting profit via rent — and the normalised EBITDA should be adjusted upward.
Related-party subcontractors. Does the business use a subcontractor who is a family member, or a related company? Confirm the rates paid are at arm's length. Request invoices and, if possible, comparable market rates for the same work.
Related-party loans. Check the balance sheet for any loans to or from related parties. Intercompany loans may have interest charges or repayment terms that affect cash flow post-settlement. This can also affect working capital calculations.
Management fees or consulting fees to related entities. If the business pays management fees to another entity owned by the seller, confirm these are at market rate and will cease on settlement. If they won't, factor them in as an ongoing cost.

Phase 4: One-Off and Extraordinary Items

These are the add-backs most open to interpretation. The test is always: is this genuinely non-recurring, and can you prove it?

Legal and professional fees. Were these for a specific dispute that is now resolved? Request copies of invoices, correspondence, and confirmation that the matter has settled. If there's ongoing litigation, it's not a one-off.
Redundancy and termination payments. These are legitimate if the employee has left and the role has been restructured. Confirm the payments were made, the employee is gone, and the role isn't being backfilled.
Repairs and maintenance described as one-off. If any year includes a large repair or refurbishment item, get specifics: what was repaired, when, by whom, and why it's not expected to recur. Then look at the asset's condition yourself.
Flood, fire, or storm damage. Legitimate if the event was genuinely extraordinary. Verify with insurance records (most claims are documented). Also confirm the damage is repaired — if there's deferred maintenance, that's your capital cost, not a clean add-back.
Year-on-year comparison. Pull "extraordinary" or "one-off" items from each year in a table and compare. If there's a one-off item in every single year, that's a recurring cost. Total the add-backs across all years and divide by the number of years to get the real run-rate cost.
Ask: does the business's cashflow support these as genuinely one-off? If normalised EBITDA is $300,000 and cash in the bank each year is consistently $200,000 to $250,000 after distributions, the add-back schedule is adding items that aren't showing up in cash. That's a red flag.

Phase 5: Non-Cash and Accounting Adjustments

These are less subjective but worth confirming.

Amortisation of goodwill or intangibles. If the business previously acquired another entity or asset and is amortising it, confirm this will not continue post-settlement (or confirm the ongoing cost if it will).
Accelerated depreciation. Some small businesses take accelerated depreciation on assets under the ATO instant asset write-off scheme. The depreciation charge in a single year may overstate the true annual economic cost of the asset. Verify the asset register and the useful life of key equipment.
Interest on business loans. If the business carries debt that will be discharged on settlement, the interest cost is added back because the new owner won't carry that debt. Confirm exactly which facilities will be discharged, the payout amount, and that this is covered in the purchase terms.
Income tax. If you're buying the shares of a company, the company's tax history travels with the shares. Understand the deferred tax position. If you're buying assets, the tax add-back is straightforward — you'll be taxed on the earnings in your own entity.

Phase 6: Revenue-Side Adjustments (Less Common but Important)

Most sellers only add back costs — but sometimes revenue also needs normalisation.

One-off revenue items. If revenue in any year was boosted by a large one-off contract, project, or event that won't recur, revenue should be adjusted down. Sellers rarely do this themselves — ask whether any year had an unusually large job.
Related-party revenue. If the business bills related entities for services, confirm these will continue after settlement. If they won't, that revenue disappears.
Revenue timing. If the seller pre-invoiced jobs or accelerated billing in the final months before settlement, the trailing revenue will fall away after you take over. Ask for aged receivables and check whether the billing pattern has changed in the final 12 months.

Phase 7: Final Stress Test

Once you've worked through each add-back category, run this final check:

Total add-backs as a percentage of reported EBITDA. If normalised EBITDA is more than 40% higher than reported EBITDA, scrutinise heavily. High add-back percentages are not automatically fraudulent — some owner-operated businesses genuinely run significant personal costs through the company — but they require more verification effort.
Does the normalised number make sense relative to revenue? A 20% EBITDA margin on a well-run plumbing or electrical business in Australia is achievable. A 35% margin after add-backs on a business the owner describes as "not that profitable" deserves extra attention.
What does your accountant say? This is not the job for your tax return accountant. You need someone who has bought businesses, not just prepared accounts. Show them the normalised P&L and the supporting documents and ask for a written view.
Consider a Quality of Earnings review. For any acquisition above $500,000, a formal QoE report from an independent accounting firm is worth the cost — typically $5,000 to $15,000. It interrogates normalisation adjustments specifically and gives you an independent, documented view of maintainable earnings. It also gives you negotiating leverage if the numbers don't hold up.

Summary Tally

After working through this checklist, record your adjusted view:

Seller's stated normalised EBITDA: $___________
Add-backs you've accepted (with documentation): $___________
Add-backs you've rejected or reduced: $___________
Your adjusted normalised EBITDA: $___________
Multiple applied: ___________x
Your adjusted indicative price: $___________

The difference between the seller's number and your number is the starting point for price negotiation — not an impasse. Sellers expect buyers to push back on add-backs. The buyers who never push back are the ones who pay too much.

EBITDA Add-Backs Verification Checklist for Business Buyers in Australia

The Three Things That Tell You More Than the Add-Back Schedule

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