An add-back schedule needs more than a larger final number. HS Strategic CFO Advisory’s sale-preparation guide recommends connecting each adjustment to records, a reason and an explanation of whether the income or expense continues. Use the exercise below to prepare that conversation with your adviser.
All example businesses, figures, periods and document IDs below are fictional. Amounts are Canadian dollars. Our example, Alder Services, has completed the twelve months ending December 31, 2025. Its annual report is labelled FY25-v1. Nobody has supplied these documents: they are invented teaching records.
1. Establish the starting number
BDC explains EBITDA—earnings before interest, taxes, depreciation and amortization—as net profit plus debt interest, income tax, depreciation and amortization. Salaries remain expenses; payroll, property and sales taxes are not all income tax. Leave an unreconciled, already-adjusted starting figure unresolved.
Alder’s FY25-v1 net profit is C$320,000. It already reflects C$30,000 of debt interest, C$60,000 of income tax and C$90,000 of depreciation and amortization. The fictional report’s supporting schedules are INT-25, TAX-25 and DA-25, respectively.
Starting EBITDA: C$320,000 + C$30,000 + C$60,000 + C$90,000 = C$500,000.
The C$500,000 also already reflects three expenses used below: the owner’s C$240,000 salary, a C$20,000 dispute expense and C$40,000 for six months of a separate employee’s salary. These are distinct entries; none overlaps another.
2. Build the proposed full-year scenario
Bedrock’s practitioner explanation of adjustments compares owner compensation with replacement cost and considers every function performed. It also illustrates a downward adjustment for a salary recorded for only part of a year. These mechanisms inform our assumptions; they are not Canadian acceptance rules.
For Alder, assume C$175,000 in annual salary replaces the owner’s complete set of duties. All other employment costs are identical between the two roles. This salary-only simplification supplies no market benchmark. The separate employee earns C$80,000 annually and is assumed to continue for a full year; that employee is not the owner’s replacement.
Owner salary comparison: C$240,000 − C$175,000 = C$65,000 added. The intermediate total is C$565,000.
Dispute scenario: provisionally add C$20,000 for the identified dispute, bringing the intermediate total to C$585,000. This is the owner’s proposed assumption, with the evidence question still open.
Separate employee: C$80,000 × 6 ÷ 12 = C$40,000 of additional salary for the missing six months. Subtracting it gives C$545,000.
Complete scenario: C$500,000 + C$65,000 + C$20,000 − C$40,000 = C$545,000.
This full-year scenario does not change historical EBITDA or prove sustainable earnings. Bedrock distinguishes specific events from recurring expenses. A resolved dispute does not establish that the expense disappears.
With the C$20,000 adjustment excluded, the alternative is C$525,000. Record both results while its status is unresolved; the difference between them is exactly the disputed C$20,000.
3. Catch the duplicate before discussing the total
Suppose draft bridge BR-01 adds DA-25’s C$90,000 a second time. Its total becomes C$635,000. That identical amount was already removed in the starting reconciliation. Correct its second inclusion to zero and retain the correction record. This arithmetic check does not approve any other adjustment. BR-02 therefore returns to C$545,000, with a note linking the removed duplicate to DA-25.
4. Fill two records, then pursue the missing evidence
Treewalk describes its quality of earnings (QoE) process as testing proposed adjustments, distinguishing their origins and comparing periods. It includes payroll-to-ledger reconciliation and supporting calculations. Our owner worksheet is a preparation exercise; it is not Treewalk’s professional report or a substitute for it.
Record period/report, adjustment ID, recorded amount, signed change, existing inclusion, assumption, document reference, status and missing evidence/next owner. Check inclusion against the starting reconciliation. Resolved does not mean buyer-approved.
Record A: the replacement salary
Identity and amount: FY25-v1, twelve months ending December 31, 2025; adjustment PAY-01. Recorded owner salary: C$240,000. Proposed change: +C$65,000. It appears once in BR-02; the recorded salary remains included in the starting C$500,000.
Assumption and support: C$175,000 annual replacement salary for the same complete duties; other employment costs equal. Fictional references: payroll schedule PAY-25, ledger account 6000 and duties sheet ROLE-01. ROLE-01 currently lists sales, estimating and staff management.
Status and next action: provisional assumption. Alder’s owner, Maya, will check ROLE-01 with the operations manager; the accountant will compare PAY-25 with account 6000. If a required function or additional replacement cost is missing, the C$65,000 remains unresolved rather than becoming an automatic add-back.
Record B: the dispute expense
Identity and amount: same FY25-v1 period; adjustment DIS-01. Recorded expense: C$20,000. Proposed change: +C$20,000. It appears once in BR-02’s C$545,000 scenario and is excluded from the C$525,000 alternative.
Assumption and support: a specific, concluded supplier dispute is assumed not to recur. Fictional invoice LEG-117 identifies C$20,000; ledger account 7100 contains the matching expense. Settlement reference SET-01 identifies the matter. These references do not establish the recurrence assumption.
Status and next action: unresolved. Maya will obtain account 7100’s prior-period detail and ask the accountant to identify similar fees and explain their circumstances. Compare the specific event with its history; an invoice supports an amount, not every assumption attached to it.
5. Change the facts and restart the calculation
MNP’s worked valuation discussion illustrates a working owner paid through dividends rather than salary. It deducts an assumed replacement salary when calculating maintainable earnings. A dividend payment is not another salary expense to add back in that example.
Now create a separate business, Birch Services. Its starting EBITDA is C$500,000, with no owner salary expense. Its working owner takes dividends. Assume the same salary-only C$175,000 replacement for all required duties, with other employment costs unchanged. After this change alone: C$500,000 − C$175,000 = C$325,000. None of Alder’s dispute or employee adjustments carries over.
Baker Tilly’s questions for a valuation expert highlight owner contributions absent from the financials and costs a future owner might incur. Before relying on Birch’s assumption, ask who will perform the owner’s work and which duties remain uncovered. If that answer changes, the replacement estimate needs attention; the arithmetic cannot answer the staffing question.
Rent deserves its own assumption. In its energy-business discussion, published in 2024 and updated in 2025, MNP considers whether rent is at market. For a separate fictional contrast, C$36,000 recorded rent versus C$60,000 assumed ongoing rent creates C$24,000 of additional expense. The C$60,000 is a stipulated input, not evidence of market rent. Keep this outside Alder’s totals and seek support for the proposed ongoing cost.
An unsupported mixed-use expense stays unresolved here; this exercise supplies no allocation method.
This worksheet does not establish cash available, a valuation or sale proceeds.
For general information and education, not legal, tax, investment or valuation advice. Examples are illustrative and do not predict your business’s value, financing terms or sale outcome. Consult qualified advisers about your situation.
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