Legitimate add-backs in EBITDA normalisation fall into five categories: above-market owner wages or superannuation, personal expenses run through the business, one-off costs, above-market related-party rent, and genuinely redundant roles. Ongoing operational costs, market-rate salaries and discretionary spend needed to maintain revenue do not qualify. Every add-back must be documented and defensible during due diligence.
Normalised EBITDA is not raw profit. It is profit adjusted to remove expenses that will not recur under new ownership. Buyers value maintainable earnings, not historical accounting entries. The accuracy of that adjustment depends on which expenses are added back and whether each one can survive due diligence.
Add-backs are expenses reversed out of reported profit because they reflect the current owner's personal choices, one-off events or related-party arrangements rather than ongoing business operations. Done properly, normalisation shows the practice's earning capacity at arm's length. Done poorly, it looks like the seller is inflating the price.
This article covers the categories of legitimate add-backs, what does not qualify, how to document adjustments and where disputes arise. It sits alongside How to normalise EBITDA for GP practice valuation and Owner clinical time: separating contribution from profit, which deal with the normalisation methodology and the owner's clinical labour adjustment, respectively.
Why add-backs exist
In small GP practices, owners may run personal expenses through the business. The company might pay for the owner's car lease, private superannuation contributions above statutory minimums, family member wages or even holiday travel. These costs reduce reported profit but have nothing to do with what the practice earns as a standalone operation.
Buyers want to see what profit the business generates when run at arm's length. Normalising EBITDA means stripping out costs that are specific to the current owner and adding that amount back to profit. The result is a figure that reflects maintainable earnings under new ownership.
A practice that reports $150,000 in profit but has $50,000 in legitimate add-backs is more profitable than raw figures suggest. The normalised figure of $200,000 is what a buyer will apply a multiple to.
What counts as a legitimate add-back
Each add-back must be justifiable, documented and defensible during due diligence. The common categories are set out below.
Owner wage or superannuation
If the owner's salary or superannuation is above or below market rate, the difference is adjusted to reflect market replacement cost.
An owner-GP earning $350,000 in salary while market rate for that clinical load is $280,000 has drawn $70,000 more than necessary. That amount is added back because a buyer would pay market rate for a replacement. The $280,000 figure is illustrative only; market rate for a full-time GP varies materially by billing model, location and session load, and current market data suggests average full-time GP earnings are higher than this in most settings. Any normalisation calculation should use an independently verified market rate for the specific clinical role, not a generic figure.
The reverse also applies. If the owner has taken a below-market salary of $200,000 to retain more profit in the company, the shortfall must be deducted. Buyers will pay market rate for replacement labour, so understating the owner's cost overstates maintainable profit. This is an adjustment that works both ways, and sellers who only adjust upwards lose credibility.
Superannuation contributions above the statutory minimum can also be added back if they reflect personal tax planning rather than business necessity, provided the additional contributions are not part of a genuine employment or retention arrangement.
Personal expenses
Car leases, family wages and private travel are personal expenses that reduce reported profit but have no business justification.
If the practice leases a vehicle used predominantly by the owner for personal purposes, that cost is added back.
Family members employed in roles that will not be retained post-sale also qualify. If the owner's spouse is paid $60,000 annually for administrative work that could be performed by a part-time employee at $25,000, the difference of $35,000 is the add-back, not the full $60,000. The buyer still needs that work done.
The ATO's Practical Compliance Guideline PCG 2025/5 (finalised November 2025) is relevant context here. It addresses income paid through related entities and to associates and sets out the ATO's view on arrangements where income is diverted to family members or retained in a structure at below-market rates of tax. An add-back calculation that identifies above-market family wages or uncommercial payments to associates will often reflect the same structural features that PCG 2025/5 flags as higher-risk from a tax perspective. Practices with these arrangements should obtain tax advice before sale, not only to support the add-back claim but to confirm the underlying structure does not carry compliance exposure that a buyer will price in or treat as a deal risk.
Private travel, entertainment and subscriptions unrelated to practice operations are also legitimate add-backs, provided they can be clearly identified in the accounts.
One-off costs
Legal settlements, large equipment write-offs, restructuring costs and other non-recurring expenses are added back because they do not reflect ongoing operating costs.
A practice that incurred $15,000 in legal fees to resolve a one-off employment dispute may add that back. A buyer should not face that expense again.
Equipment purchases are normally capitalised and depreciated, but if a large equipment outlay was written off in a single year it may distort profit for that period. Buyers adjust for this to see the underlying operating result.
One-off government grants or PHN grants that inflated profit temporarily are removed. These one-off payments are not sustainable income.
Related-party rent
If the practice pays rent to a related entity controlled by the owner, that rent must reflect fair market rate. If it is above market, the excess is added back. If it is below market, the shortfall must be deducted from EBITDA.
A practice paying $120,000 annually in rent to a trust controlled by the owner when market rent is $90,000 has $30,000 in excess costs. That amount is added back. A practice paying $60,000 in rent when market rate is $90,000 faces a $30,000 deduction, because the buyer will pay market rate.
Related-party arrangements attract heavy scrutiny during due diligence. Any deviation from market rate must be documented with independent evidence.
Redundant roles
Roles that will not be required post-sale can be added back if the cost savings are genuine and defensible.
A family member employed in an administrative position that duplicates work handled by the practice manager might qualify for add-back if the role will be eliminated. Buyers will verify whether the work is genuinely redundant or whether removing the role would create a gap in operations.
What does not qualify as an add-back
Buyers reject adjustments that attempt to inflate EBITDA without legitimate justification.
Ongoing operational costs
Staff wages, rent, utilities, insurance and supplies are part of normal business operations. These costs cannot be added back on the basis that the owner believes they could be reduced under different management.
A practice cannot claim that staff wages are too high and add back $50,000 on the assumption that a new owner will pay less. If current wages reflect market rates and the staffing level is necessary to maintain operations, those costs stay in the EBITDA calculation.
Market-rate salaries for legitimate roles
If the owner employs a practice manager at $100,000 and that salary reflects market rate for the scope of work, it cannot be added back. The buyer will need to retain that role or hire someone equivalent.
If the owner pays themselves a market-rate GP salary for clinical work, that cost cannot be added back unless the buyer plans to work clinically themselves. The normalisation methodology for owner clinical contribution is covered in the companion article on owner clinical time.
Discretionary costs that will continue
Marketing, professional development and technology subscriptions cannot be added back if they are necessary to maintain patient volumes and practice operations.
A practice that spends $20,000 annually on digital marketing cannot claim this as an add-back on the assumption that the buyer will not advertise. If patient acquisition depends on that marketing spend, removing it misrepresents the cost of running the business.
Costs that improve the business
Expenses that directly improve revenue or operational capacity are not add-backs. Investment in new clinical equipment, software upgrades or premises improvements should be evaluated separately, not stripped from EBITDA as though they were optional.
How to document add-backs
Every add-back must be supported by evidence. Buyers and their accountants will verify claims during due diligence.
Documentation should include:
- BAS statements and tax returns showing where the expense was recorded
- Invoices or receipts proving the cost and its purpose
- An explanation of why the expense is non-recurring or owner-specific
- Comparison to market rates where relevant (for related-party rent or family wages)
- Accountant verification confirming that the adjustment is justified
Practices that cannot substantiate add-backs face two outcomes. Buyers reject the claim and revalue the practice based on lower EBITDA. Or the lack of documentation signals poor financial management, which reduces confidence in every other figure the seller has presented.
Common disputes over add-backs
Buyers regularly challenge add-backs that seem excessive or poorly justified. The common areas of contention are:
- Family wages where the owner claims a role is redundant but the buyer believes the work is necessary
- Personal expenses where the line between business and private use is unclear (a vehicle used for both patient visits and personal errands is a typical example)
- Related-party rent where the owner claims market rate but the buyer's independent valuation differs
- Discretionary costs where the owner argues an expense can be eliminated but the buyer sees it as necessary to maintain revenue
The way to reduce these disputes is to work with an accountant to prepare a normalised EBITDA calculation that includes only defensible add-backs and provides clear supporting documentation for each.
Example normalised EBITDA calculation
Raw EBITDA: $200,000
Add back owner's above-market superannuation: +$25,000
Add back personal vehicle lease: +$15,000
Add back one-off legal fees: +$10,000
Add back redundant family admin role: +$35,000
Normalised EBITDA: $285,000
Each add-back is supported by invoices, BAS statements and accountant verification. The result is a defensible profit figure that reflects maintainable earnings under new ownership.
When to prepare the normalised EBITDA calculation
Many GP owners wait until due diligence to calculate normalised EBITDA. This delays the sale process and weakens the seller's position. Buyers recast the financials themselves, usually with less favourable assumptions.
GP owners planning to sell within three years should engage an accountant to prepare a normalised EBITDA statement for the past two to three financial years. This should identify all legitimate add-backs, document each one with supporting evidence and present the result in a format that a buyer's accountant can verify without further requests.
Practices that produce this documentation upfront demonstrate financial literacy and readiness for transaction. They avoid valuation discounts that result from incomplete or last-minute financial preparation.