An add-back is a cost the business will not carry under new ownership. Owner compensation above market, documented personal expenses, non-working family payroll, one-time legal or equipment costs, and above-market related-party rent are the common ones.
More detail
The test is whether the expense would recur for a buyer running the business normally. Replacing a $400,000 owner salary with a $180,000 general manager is a defensible $220,000 add-back. A company vehicle used by a family member who does not work there is defensible. Entertainment and travel that actually generated business is not. Every add-back needs a document behind it: a payroll record, an invoice, a lease, a settlement agreement. Quality-of-earnings providers test them individually, and add-backs that cannot be evidenced get removed, which lowers both the earnings and the price. The discipline is to claim only what you can prove and to prepare the evidence before a buyer asks.