For four years, part of my job was crossing add-backs out. I built and ran the M&A team at one of the country’s largest DSOs, and every practice we evaluated arrived with a list of proposed add-backs attached to its financials. Some of those lists survived diligence almost intact. Many lost real value, and the sellers behind them usually learned what an add-back was in the same month they learned theirs were being rejected.
That timing is the problem. By the time a buyer starts cutting, the letter of intent is signed, the other buyers are gone, and every rejected dollar comes straight out of the price. So this post covers what I watched happen from the inside: how add-backs actually get reviewed, why they get rejected, and what a list that survives looks like. If you want the full context on how add-backs fit into a sale from start to finish, that’s in our complete guide to selling your dental practice.
What an Add-Back Is, and What It's Worth
An add-back is an expense on your P&L that a new owner wouldn’t carry, so it gets added back to earnings when calculating the adjusted EBITDA your practice is priced on. Your personal vehicle. A family member in a role a buyer wouldn’t staff. A one-time equipment purchase. Above-market rent paid to your own building entity.
The math is what makes this worth your attention. Practices sell on a multiple of adjusted EBITDA, which means every add-back dollar a buyer accepts is worth several dollars of purchase price. Every dollar they reject costs you the same way, in the other direction. The add-back list is not an accounting formality. For most sellers it is the single most consequential document in the deal after the purchase agreement.
Which is exactly why buyers treat it the way they do.
Who Actually Reviews Your Add-Backs
Sellers tend to picture the add-back conversation as a negotiation: two sides at a table, arguing line by line. That’s rarely how it works.
At the DSO where I worked, a seller’s numbers passed through multiple layers before a final number was ever stamped. It starts with the deal team: an analyst or associate takes the model you and your advisor provided, or builds one of their own, and runs a first surface-level pass on the add-backs and adjustments. What comes back to you or your broker isn’t a verdict. It’s clarifying questions. From there the review climbs: associate, director, vice president, on some deals all the way to the Chief Development Officer, and what survives goes into the memo the investment committee reads. Multiple layers of internal review, and multiple rounds of questions back to the seller, happen before an offer ever goes out.
What sellers misread about that process: the clarifying questions are most of the negotiation. There is no meeting where the CE trip that was really a family vacation gets debated. There’s a question about it, and if the answer doesn’t hold up, the line comes out of the model. The model updates, and the effect shows up as a revised number, not a conversation. Most add-backs that die are never argued over. They’re asked about once, and then they’re gone.
The Three Tests Every Add-Back Faces
Watching hundreds of these lists get reviewed, the rejections almost always traced back to one of three questions.
Can you prove it? An add-back is a claim, and claims need evidence. If you say $18,000 of travel was personal, the buyer wants to see the ledger entries, the dates, the pattern. An add-back supported by an invoice and a clean paper trail gets accepted. The same add-back supported by “trust me” gets discounted or removed, even when it’s true. Diligence teams aren’t paid to believe you. They’re paid to verify.
Is it actually non-recurring? This is the test that kills “one-time” expenses. A one-time expense that appears in three consecutive years is a run-rate expense wearing a costume, and buyers pull the multi-year ledger specifically to catch it. Equipment repairs, recruiting fees, marketing pushes: if the category keeps refilling, the buyer treats it as a cost of running the practice, because it is.
Does the cost really disappear under new ownership? The subtlest test, and the one sellers get wrong most often. Take the spouse doing the books at $80,000 a year. The role doesn’t vanish when you sell. Someone still has to do the books, so the buyer replaces the spouse with a market-rate bookkeeper and credits you the difference, not the whole salary. Sellers who add back the full number fail this test on every line it touches. The question is never whether you paid for something. It’s whether the buyer will have to.
The Six That Almost Never Survive
Across the deals I reviewed on the buy side, the same categories died over and over:
- The owner’s vehicle. If the practice genuinely needs a car, the cost stays in the model. If it doesn’t, the buyer wonders why it was ever there. Either way it rarely survives.
- Family on payroll. Credited at the delta to a market-rate replacement, and only when the role is genuinely redundant. Never at face value.
- “One-time” expenses that repeat. Fails the recurrence test above. The three-year ledger exists to catch exactly this.
- Personal travel and meals. The cleanest removal there is. No debate, no partial credit. Just gone, and the deal quietly reprices with it.
- Discretionary spending with no documentation. Even legitimate personal expenses die without a paper trail, because the buyer can’t separate them from operating costs.
- Owner comp, handled wrong. The biggest one, covered next, because it can cut both ways.
The Adjustments That Work Against You
Sellers think of the adjustment process as additive: a list of items that push EBITDA up. Buyers run it in both directions, and the downward adjustments are the ones nobody warns you about.
The largest is doctor compensation, and it arrives wrapped in a myth I heard at the table constantly: that you can choose your own compensation after the close. A doctor producing $1.5 million comes to the table, often coached by an advisor or CPA who doesn’t live in dental M&A, and offers to take a $200,000 salary post-close. On paper, that choice manufactures EBITDA. The buyer won’t accept it, and not because they’re being difficult. Buyers set doctor compensation to a market rate on production, because that’s what the dentistry actually costs to produce, by you today and by whoever replaces you someday. It’s an industry standard, and from the buy side it’s a sensible one: it prices the real cost of the clinical work and ties compensation to what the practice collects. On $1.5 million of production, market-rate compensation doesn’t look like $200,000. It looks closer to $450,000. The comp line moves, and $250,000 of the EBITDA you thought you had is gone. Not rejected. Corrected.
Nobody is happy in that room. The buyer still wants the practice. The seller still runs a fantastic one. The only thing wrong was the expectation somebody set months earlier, and by the time it surfaces, it feels like a $250,000 loss instead of what it always was: a number that was never real.
The same logic runs through an associate paid below the market percentage. That gap is a cost the buyer inherits, so it comes off the top.
Then there’s the building. If you own your real estate, the rent your practice pays you is a related-party number, and buyers treat it that way. After the LOI, they’ll establish a market rate and put a new lease in place: a real lease with real terms, even when the landlord is still you. This one cuts both ways. If the practice has been paying you below-market rent, the correction adds cost to the model and EBITDA comes down. If you’ve been charging yourself above market, the adjustment moves in your favor. Either way, the rent on your P&L today is probably not the rent the deal gets priced on.
This is why some sellers with completely clean add-backs still watch their EBITDA fall in diligence. Nothing was rejected. The buyer just finished the math that the list started, with compensation normalized, rent marked to market, and both directions run.
The Expensive Part: What Aggressive Add-Backs Say About You
Here is the dynamic that costs sellers the most, and the one I never see written about honestly.
An add-back list is also a character reference. When an analyst finds two or three indefensible items, like the country club dues claimed as marketing or the “one-time” repair in its fourth consecutive year, they don’t just remove those items. They stop extending the benefit of the doubt to everything else on the page. Judgment calls that would have gone your way now go the other way. The legitimate add-backs start getting discounted too, because its author has demonstrated they’ll claim things that aren’t true.
I watched this repeatedly from the buyer’s side. The sellers who lost the most in diligence were rarely the ones with the fewest add-backs. They were the ones with the most optimistic ones. A conservative list with proof behind every line consistently outperformed a maximal one built on hope, in the final number and in every negotiation that followed, because credibility turned out to be the seller’s most valuable asset in the room.
Why the Cutting Happens After the LOI
None of this is hidden malice. It’s sequencing, and understanding the sequence is understanding the leverage.
Your numbers face two reviews. The first happens before the offer: the internal pass described above, surface-level and model-based, resolved through clarifying questions to you or your broker. An LOI gets priced off what survives that pass, and at that depth, plenty survives. The second review comes after you’ve signed: the buy-side quality of earnings. A distinction worth being fair about, because I sat on that side: the QofE is not a tactic to grind your EBITDA down. Most groups are required to get one by their lender or their sponsor before they can close. Required or not, though, it is the true test of your numbers and your practice: an outside firm rebuilding your earnings from the ledger up, transaction by transaction, with no reason to extend any line the benefit of the doubt.
The timing is what makes it expensive. By the time the QofE runs, you’ve signed an exclusivity provision and released your other bidders. When add-backs fail that second review, the buyer comes back with a lower number at the precise moment your alternatives have moved on. Nobody designed that to hurt you. It’s simply how the sequence runs, and it runs the same way on every deal.
You don’t beat that sequence by negotiating harder in month five. You beat it by presenting numbers in month one that were built to survive month five. A list that holds up under the QofE closes at its LOI price, and one that doesn’t, doesn’t.
What a List That Survives Looks Like
Everything above compresses into a short list of standards. This is roughly what I’d have wanted every seller to know when I was on the other side:
- Every add-back is documented at the transaction level. Ledger entries, invoices, dates. If finding the support would take you a weekend, do it before going to market. The buyer’s analyst will do it either way, on their terms.
- Every add-back is claimed at the delta, not the gross number. The buyer credits the difference between your cost and their go-forward cost. Lists built on that logic read as informed. Lists built on face values read as wishful.
- “One-time” means once. Check the category across three years before claiming it. If it repeats, leave it in the model and let the trend speak instead.
- Owner comp is normalized before the buyer does it for you. Know the market rate on your production and present EBITDA with that correction already made. It’s the single most common repricing in dental deals, and presenting it yourself converts a diligence surprise into a credibility signal.
- When a line is arguable, leave it off. The item is worth its face value times the multiple. Your credibility is worth the whole list times the multiple. That trade is never close.
The pattern behind all five: every one of these is fixable twelve months before you go to market, and almost none of them are fixable twelve days before close. Add-back cleanup costs nothing but attention, and it’s the highest-ROI preparation a seller can do, which is why starting early beats negotiating hard, as the complete guide argues from the first section.
Where to Start
Every expensive story in this post traces to the same root: an EBITDA built by someone who doesn’t live in dental M&A. An accurate adjusted EBITDA is a specialist’s number. Buyers construct it their own way, and a generalist’s version sets expectations the buyer will never honor. Mis-set expectations cost sellers more than any single rejected add-back, because they turn a good deal into a disappointment at the exact moment it should be closing.
If a sale is anywhere on your horizon, the useful first step is seeing your practice’s numbers the way a buyer’s diligence team will, including which of your add-backs would survive and what your EBITDA looks like after normalization. That’s what a valuation built to buyer standards is for, and it’s what we do at Ascend Strategic Partners: a free, confidential practice valuation, built the way I built them on the buy side, reviewed personally, with no obligation and no pitch.
The sellers who do well in diligence aren’t lucky. They just did this part before anyone was watching.