EBITDA add-backs are the adjustments that turn your reported profit into the earnings a buyer will actually pay for. When you sell a business in the UAE, they can move your price by hundreds of thousands of dirhams, and not always in your favour. This guide shows which add-backs buyers accept, which they reject and what UAE owners often miss, with a worked example in AED.
It is written for owners planning a sale in the next 12 to 24 months. For a first estimate, try our valuation calculator. For a number you can defend, book a market value assessment.
Key takeaways
EBITDA means earnings before interest, tax, depreciation and amortisation. Buyers adjust it before they apply a multiple.
An add-back is a cost that will not continue under a new owner, such as a one-off legal bill or a personal expense run through the company.
UAE owners often need deductions too. With no personal income tax, many owners draw little or no salary, and a buyer will charge a market-rate manager against the profit.
Every adjustment needs paper behind it. If you cannot document a line, expect it to be removed.
Build the adjusted figure before the buyer does. It keeps the conversation on your numbers.
What are EBITDA add-backs?
EBITDA is net profit plus interest, tax, depreciation and amortisation. Reported EBITDA shows what the books say the business earned. Adjusted EBITDA, also called normalised EBITDA, shows what the business should earn under a new owner in a normal year.
The gap between the two is made of adjustments. An add-back raises EBITDA, because it removes a cost that will not carry on. A deduction lowers EBITDA, because it adds a cost the books do not show today. Both belong in the calculation.
Some advisors use seller's discretionary earnings (SDE) for small owner-run businesses. SDE adds back the owner's full pay and perks, so it shows the total income one working owner can take out. The table shows how the three measures differ.
Measure
What it shows
Who it suits
Reported EBITDA
Profit from the books before interest, tax, depreciation and amortisation
A starting point only
Adjusted (normalised) EBITDA
Reported EBITDA after one-offs are removed and owner and related-party costs are set to market levels
Buyers who will hire a manager, such as companies, funds and investors
SDE
Earnings before any owner pay, so the total income for one working owner
Why do buyers adjust EBITDA before they set a price?
A buyer pays for future earnings, not past accounting. So the buyer's team looks for the level of profit the business can sustain once you are gone. PwC describes this work in buy-side due diligence as identifying "quality of earnings adjustments" to a "sustained level of EBITDA going forward on a standalone basis" (PwC).
That means your adjustments will be tested line by line. A seller who arrives with a clean, documented schedule keeps control of the conversation. A seller who arrives with a rough number hands that control to the buyer.
Which add-backs do buyers usually accept?
Buyers accept an add-back when the cost is clearly unrelated to running the business or will not repeat. The table shows the common ones.
Add-back
Usually accepted when
Evidence buyers ask for
One-off legal or professional fees
The matter is closed and unlikely to return
Invoices and the settlement or closing letter
Owner's personal expenses paid by the company
They are private, such as a car, travel or family costs
Ledger detail and receipts
Family members on payroll who do not work in the business
The role is not needed, or the pay is above market
Job descriptions, attendance records, contracts
Owner pay above market
Only the part above what a replacement manager would cost
Payroll records and a salary benchmark
One-time projects such as a rebrand or system migration
The project is finished
Contracts and project invoices
Non-cash or non-operating items
They have nothing to do with core trading
Audit notes and journal entries
Notice the pattern. Accepted add-backs are specific, finished and provable.
Which add-backs do buyers reject?
Buyers push back on add-backs that look like normal running costs with a new label. Watch for these:
Costs that repeat every year, such as marketing, repairs or staff turnover, described as "one-off".
Perks that were really part of staff pay, such as housing or a driver that other managers receive too.
Savings you have not made yet.
Revenue you hope to win. That belongs in the story of the business, not in the earnings figure.
Any item with no invoice, contract or ledger entry behind it.
A useful rule of thumb: if the same cost appeared in two of the last three years, expect a buyer to treat it as recurring.
Why do UAE owners often need deductions as well as add-backs?
The UAE has no personal income tax (PwC). Some owners therefore take most of their return as profit and draw little or no salary. The accounts then look better than they would with a manager on a normal pay package.
A buyer who has to hire a general manager will charge that salary against the earnings. So if you work full time in the business and pay yourself nothing, the correct adjustment is a deduction.
The same logic applies to related parties. Say you rent premises from your own company at a low price, or buy from a supplier you own at a favourable price. A buyer will restate those costs at market level. Deloitte notes that payments to connected persons are deductible for corporate tax purposes only if they can be justified as being at market value (Deloitte). That is a tax rule, separate from valuation, but it points the same way: unusual terms with owners and relatives get tested.
Corporate tax also matters for what the buyer keeps. The UAE rate is 9% on taxable income above AED 375,000, and qualifying income of a Qualifying Free Zone Person is taxed at 0% (PwC). EBITDA is measured before tax, so the rate does not change your adjusted EBITDA. It does reduce the cash a buyer takes home, and buyers weigh that when they set an offer. Our piece on how UAE corporate tax affects what your business is worth goes deeper.
This example is hypothetical. The figures and the 4 times multiple are illustrations only. They are not a market benchmark or a valuation of any real business.
Line
AED
Reported EBITDA
2,000,000
Add-back: relative on payroll with no role in the business
+120,000
Add-back: closed legal settlement
+180,000
Add-back: owner's personal car and travel
+90,000
Add-back: finished rebrand project
+60,000
Deduction: market-rate general manager (owner draws no salary)
-360,000
Deduction: rent from the owner's affiliate restated to market
-60,000
Adjusted EBITDA
2,030,000
At an illustrative 4 times EBITDA, the reported figure implies AED 8,000,000. The adjusted figure implies AED 8,120,000.
Now the trap. Count only the add-backs and you reach AED 2,450,000 and a price of AED 9,800,000. A buyer who spots the missing deductions will bring you back to AED 8,120,000. The AED 1,680,000 gap will have cost you credibility along the way. Showing both sides of the schedule is what makes the number believable.
How do you prepare adjusted EBITDA before you sell?
Pull three years of accounts and the current year's monthly figures.
List every cost that involves you, your family or any related company.
Label each item: one-off, personal, above market, below market or normal running cost.
Attach evidence to each line: an invoice, contract, payroll record or board note.
Add the deductions you may have missed, such as a market salary for yourself and market rent for related-party premises.
Test the result. Could a stranger repeat every number from the paperwork alone?
Ask an M&A advisor to challenge the schedule before a buyer does.
Build your adjusted EBITDA schedule before you go to market. Do not wait for the buyer to build it for you.
Include deductions as well as add-backs. A one-sided schedule costs you trust.
Keep evidence for every line. No paperwork usually means no add-back.
Fix the obvious items now: put family on proper contracts, stop running personal costs through the company, and document related-party terms.
Selling or buying elsewhere in the GCC?
Tax, ownership and related-party rules differ across the GCC. The same cost can be treated differently in Saudi Arabia, Qatar, Kuwait, Bahrain or Oman than in the UAE. Take advice from a licensed professional in the country where the business operates before you finalise any adjustment.
Frequently asked questions
What are EBITDA add-backs?
EBITDA add-backs are adjustments that remove costs which will not continue under a new owner, such as one-off legal fees or personal expenses paid by the company. They move reported EBITDA closer to the figure a buyer can use to value the business.
What is normalised EBITDA?
Normalised EBITDA, also called adjusted EBITDA, is earnings after one-off items are removed and owner and related-party costs are restated to market levels. It shows the profit a new owner could expect in a normal year.
Can I add back my own salary?
Only the part above what a replacement manager would cost. If you work in the business and draw less than a market salary, or nothing, a buyer will deduct the difference instead.
Does the 9% UAE corporate tax change EBITDA?
No. EBITDA is measured before tax. The UAE rate is 9% on taxable income above AED 375,000, and qualifying free zone income can be taxed at 0%. Tax reduces the cash a buyer keeps, so buyers weigh it when they set their offer. Your accountant can confirm how it applies to your company.
How much can add-backs change my valuation?
It depends on the size of the adjustments and the multiple the buyer applies. In the hypothetical example above, net adjustments of AED 30,000 moved the value by AED 120,000 at a 4 times multiple. Counting add-backs alone would have overstated it by AED 1,680,000.
Do buyers use EBITDA or SDE for a small UAE business?
It depends on the buyer. Someone who will work in the business often looks at seller's discretionary earnings. A company or fund that will hire a manager usually looks at adjusted EBITDA. Ask your advisor which measure fits your likely buyers.
Transworld GCC is an M&A advisory firm that helps owners sell businesses across the six GCC countries. Want to know what a buyer would make of your numbers? Contact our team for a confidential conversation about your value and your next step.
