Normalised Profit: What Add-Backs Business Owners Often Propose (And What Buyers May Question)

When preparing a business for sale, most owners look to present a version of profitability that better reflects the ongoing earnings a buyer could reasonably expect. This “normalised profit” often includes a series of add-backs—costs that the current owner believes won’t carry forward under new ownership.

But not all add-backs are viewed equally. Some are straightforward. Others are negotiable. And some are likely to be challenged, especially if they lack documentation or occur every year under the banner of being “one-off.”

Here’s a breakdown of the types of add-backs owners often put forward—along with the kinds of questions that might come with them.

🧾 Owner’s Wages, Super and Payroll On-Costs

Adjustments are commonly made where the owner’s salary is either above or below what it would cost to hire someone to replace them. Where wages are adjusted, it’s typical to see superannuation and payroll tax realigned in step.

Buyers may want to understand who’s stepping into the role and whether the business can operate independently of the current owner.

🛡️ Insurance – Business vs Personal

Some owners propose adjustments for insurance policies that are personal in nature—things like private health, life insurance, or bundled family cover that’s run through the business.

Whether these are treated as non-business expenses will often depend on how clearly they can be separated from operational needs.

🧠 Professional Fees – Compliance vs Strategic Advice

Standard accounting and bookkeeping costs are generally accepted as business expenses. However, if an owner is also paying for trust structures, estate planning, or wealth strategy through the business, they may argue these are personal and not ongoing.

The line between business and personal strategy isn’t always clear, and some buyers will drill into this area closely.

💼 Coaches, Consultants & Mentors

Owners sometimes engage external coaches or business mentors. These might be considered non-core by a new owner, particularly if the business is stable or doesn’t rely on ongoing strategic input.

Again, some buyers will accept these as discretionary; others may view them as critical to current performance.

🖥️ IT Projects, Websites & One-Off Builds

Large system upgrades or rebranding efforts are often proposed as add-backs—particularly if they aren’t expected to repeat.

A full website rebuild or ERP implementation may be viewed as a genuine one-off. But projects that happen every two or three years may be considered part of the cost of staying competitive.

🏠 Rent Adjustments – Especially When Owner Owns the Property

Where the business owner also owns the property, the rent charged to the business can be below or above market. Rent is often “normalised” to reflect commercial rates.

This is common in trades, hospitality, and manufacturing. But it’s typically supported by market benchmarks or formal valuations.

💸 Undocumented Cash Sales

In some industries—like cafés or takeaway food—owners may claim a portion of sales are off the books. While this may reflect reality in some cases, it can be extremely hard to prove.

Till dockets or deposit patterns might help support the claim, but it’s legally sensitive territory and generally treated cautiously by buyers and advisors.

🛠️ Capital Items – One-Off or Ongoing?

Occasionally, owners will add back large capital purchases—equipment or machinery bought outright during the year. Whether this is accepted often comes down to how frequently those items are replaced.

A 20-year-old CNC machine or point-of-sale system might reasonably be considered “one-off.” A fleet of buses for a transport company, though, is part of the ongoing cost of doing business.

❗ One-Off Items That Appear Every Year

One of the most common sticking points in a normalisation exercise is the so-called “one-off” that mysteriously happens every single year. A bad debt, a late tax bill, a repair.

If it keeps turning up, a buyer may question whether it’s really exceptional—or just business as usual in disguise.

💭 Bad Debts

Owners may suggest that a large bad debt in a given year was extraordinary and unlikely to happen again. While that might be true in isolated cases, regular write-offs can start to look like part of the operating rhythm.

It often comes down to how frequent and material the losses are—and whether there’s been a change in credit policy.

🧮 Depreciation and Interest

These are almost always removed as part of standard EBITDA calculations, particularly in asset-light businesses or where buyers will use their own debt structure.

🚘 Vehicles & Fringe Benefit Items

Company vehicles used partly for personal purposes are often presented as candidates for partial add-backs—especially when fringe benefits tax (FBT) is involved. If the car is used by the owner or senior staff for non-business purposes, the logic is that not all associated costs (lease, fuel, rego, maintenance) should be attributed to the business moving forward.

In some cases, owners also point to the type of vehicle—arguing that a luxury car or top-tier model isn't a business necessity, and that a more modest vehicle would be sufficient.

🧠 This often results in a partial adjustment rather than a full one. FBT records or logbooks can help clarify the business/personal split. Buyers will generally want to understand whether the vehicle is essential to operations, and if so, whether it could be done more cost-effectively.

⚖️ One Final Point: You’ve Already Had the Benefit

Every add-back that’s proposed is, in effect, a benefit the owner has already enjoyed—either in cash, tax minimisation, or discretionary spending. Asking a buyer to now pay a multiple of those same profits only holds water if they’re truly irrelevant to the future of the business.

Put simply: the stronger your justification, the more likely it is to be accepted. Documentation and transparency go a long way.