If you’ve ever looked at a business valuation prepared by a broker or a seller, you’ve probably seen a section labelled “ad-backs.” On paper, they look harmless: adjustments that supposedly make the business more profitable than the accounts suggest.
In reality, ad-backs are where deals get distorted, prices get inflated, and buyers get stung. They can add hundreds of thousands of pounds to the valuation with the stroke of a pen—and unless you challenge them, you risk paying for profits that don’t actually exist.
Let’s look at what ad-backs are, why they’re dangerous, and how to deal with them like a disciplined buyer.
What Are Ad-Backs?
An ad-back is when a seller says: “Ignore that expense; you won’t need to pay it after I’m gone. Add it back to the profit.”
For example:
Director’s salary. “I pay myself £100,000, but you won’t need me anymore, so add that back.”
Personal pension. “I withdraw £45,000 a year, but you won’t continue that, so add it back.”
Bonuses. “I paid staff £50,000 in bonuses last year, but you don’t have to.”
Each adjustment increases EBITDA. And because valuation is EBITDA × multiple, every £1 of ad-back might add £3–£5 (or more) to the final price. That makes ad-backs extremely expensive if they’re not real.
Why You Must Challenge Every Ad-Back
On the surface, ad-backs sound reasonable. In practice, they often crumble under scrutiny.
Take the classic director’s salary. Yes, the current owner may leave—but someone has to replace them. If they’ve been charming clients, negotiating supplier terms, and keeping contracts alive, you’ll need to hire someone to do that job. By the time you add salary, employer’s NI, pension, and perhaps a car allowance, the £100k “saving” is back on the expense line.
Or consider staff bonuses. A seller might argue they were “one-off.” But if you stop bonuses, staff leave. Morale collapses. Productivity drops. Suddenly your turnover shrinks and you lose deferred consideration.
Even “legitimate” ad-backs—like legal fees for an employment tribunal—need caution. Yes, that case may be a one-off. But if it reveals a toxic culture or a pattern of disputes, it’s not really non-recurring.
The golden rule? Every ad-back is guilty until proven innocent.
Common Ad-Back Traps
1. Director’s Salary
Almost always challenged. Unless the director genuinely does nothing, you’ll need someone to replace their work.
2. Family Members on Payroll
If the owner’s spouse or children are paid but do no work, that can be adjusted. But be careful—sometimes they’re more involved than it appears.
3. Personal Perks
Cars, travel, phones, even the dog’s insurance—if these are purely personal, they can be added back. But the burden of proof is on the seller.
4. One-Off Legal Costs
Tribunal claims, disputes, or settlements. Possibly valid, but you need to ask: what caused it? Could it happen again?
5. Marketing Spend
This one is laughable. Sellers sometimes argue advertising is “non-essential.” If you stop marketing, how will you attract new business?
6. Redundancies
If the seller made redundancies and paid settlements, that may not recur. But ask yourself whether the redundancies were part of normal operations.
Case Example: The £580,000 Mirage
In one deal, a seller argued for ad-backs of:
£100,000 director’s salary.
£45,000 pension.
£50,000 staff bonuses.
On paper, that added £195,000 to EBITDA. At a 3× multiple, it inflated the valuation by nearly £600,000.
But when we challenged it:
The director’s role needed replacing.
Staff bonuses were part of culture and retention.
The pension was simply part of overall remuneration.
Result? None of those ad-backs were valid. Without that challenge, the buyer would have paid £580,000 more than the business was worth.
How to Handle Ad-Back Negotiations
1. Start Neutral
Do your first valuation with zero ad-backs. That gives you a clean, factual baseline.
2. Interrogate Every Claim
Ask:
What does this expense relate to?
Will it really disappear after completion?
Will it need to be replaced by another cost?
Is it one-off, or is there a risk of recurrence?
3. Reframe the Conversation
If the seller insists on an ad-back, make them prove it. Treat it as part of negotiation, not a given.
4. Use Deal Structure to Manage Risk
If you can’t agree, build protections into the deal:
Earn-outs linked to staff retention.
Deferred consideration tied to repeatable profits.
Warranties covering “one-off” claims.
5. Stay Disciplined
Remember: ad-backs are the seller’s problem, not yours. If they want you to pay for a “normalised” profit level, the burden of proof is on them.
Why Brokers Love Ad-Backs
Brokers often encourage sellers to pad their accounts with ad-backs. It makes the numbers look better, justifying a higher asking price. They’ll prepare a glossy pack showing “adjusted EBITDA” that bears little resemblance to reality.
The problem is, by the time you arrive at the table, the seller believes those numbers. They’ve been promised a value inflated by fictional savings. Your job is to calmly, professionally, and firmly bring the conversation back to fact.
Case Example: The Advertising “Saving”
A seller once tried to claim a £30,000 ad-back for advertising spend. “You won’t need to advertise going forward,” they said.
Our response? “If you stop advertising, how are you planning to bring in new customers?”
Silence. That ad-back disappeared very quickly.
The Emotional Trap
Ad-backs are where emotion creeps in. Sellers are often convinced they’ve “run the business lean” and that all extras are optional. Buyers, desperate to make a deal, sometimes accept too many adjustments to get the numbers to stack up.
That’s why having a neutral accountant is critical. At OnPoint, we challenge every ad-back without emotion. We ask the awkward questions so you don’t end up rationalising your way into overpaying.
The Bottom Line
Ad-backs can be legitimate, but they’re rare. More often, they’re used to inflate valuations and justify prices that don’t hold up.
Always start with a clean EBITDA.
Treat ad-backs as guilty until proven innocent.
Challenge every line.
Protect yourself with deal structures if you can’t agree.
Above all, remember: if you accept inflated ad-backs, you’re not just paying for a business—you’re paying for fiction.
Call to Action
At OnPoint Accounting, we’ve seen every trick in the book when it comes to ad-backs. Our valuation reports cut through inflated adjustments and give you a clear, defensible picture of what the business is really worth.
👉 Don’t get caught paying for profits that won’t exist. Contact OnPoint Accounting today for an independent valuation that keeps you safe.
Please seek professional advice and guidance when considering implementing the content of this blog, and always advise the seller to seek independent advice.
To learn more about the financial due diligence process in buying a business, why not purchase the book “Buying a Business The Smart Way” By Johann Goree: https://amzn.eu/d/0anwcVBk
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