The five add-backs underwriters reject most, and the evidence that would have saved them
From a review of kickback letters across several hundred packages, the same adjustments fail for the same reasons.
1. Personal expenses without transaction detail
A round-number estimate for personal travel or meals fails every time. The fix is a credit card export with the personal lines marked, totaled and attached.
2. Replacement salary below market
Adding back an owner's $265,000 salary against a $60,000 replacement for a role that clearly needs a $120,000 general manager invites a restatement. Attach a salary survey.
3. Legal fees that recur
Non-recurring means it appears once. If legal expense is $80,000 in each of three years, it is an operating cost.
4. Projected savings
Future headcount cuts, renegotiated leases and planned price increases are not historical cash flow. Show them in a pro forma exhibit and do not add them back.
5. Family payroll without attestation
A spouse on payroll may actually run the books. Lenders want a written statement of duties, and if duties exist, a replacement cost.