Landscaping and grounds maintenance · Unverified add-backs
The add-backs that didn’t survive quality of earnings
A landscaping company priced on $450k of SDE. An independent review found $100k of it wasn’t there, and the loan stopped working at the asking price.
- Asking price
- $1M–$1.5M
- Outcome
- Closed at a renegotiated price
Illustrative composite. This breakdown combines patterns that come up again and again in small-business acquisitions into one fictional deal. The business, the people, the location and every figure are invented. It is not a real transaction, and any resemblance to a specific deal is coincidental.
An add-back is a claim, not a fact. Size your offer on the SDE you can document, and treat everything else as upside you don’t pay for.
The deal
A commercial and residential landscaping company, about 20 years old, with three maintenance crews, a small installation crew and a winter snow-removal contract book. Revenue around $2.1M. The owner wanted to retire and listed it at $1.35M on stated SDE of $450k, a 3.0x multiple that looked reasonable for the sector.
The add-back schedule in the CIM came to $170k: the owner’s $90k salary, $35k of “one-time” equipment repairs, a $45k salary for the owner’s spouse described as “non-working family payroll”, and a few small personal expenses. The buyer ran the numbers on the stated SDE, saw comfortable coverage, and signed an LOI at the asking price with a quality of earnings review as a condition.
What surfaced in diligence
The QoE accountant tied the add-backs to the general ledger and three years of tax returns. The owner’s salary held up: it appeared as officer compensation every year. The other two big items didn’t.
The “one-time” equipment repairs showed up in all three years at roughly the same size. Mowers, trailers and a skid steer wear out on a schedule; that’s a recurring cost of running the business, not a one-off. And the spouse wasn’t non-working. She ran scheduling, invoicing and collections, a real job the buyer would have to hire for at about the same cost. Between the two, $100k of claimed SDE came out, leaving $350k.
The numbers
At the asking price, with closing costs and seasonal working capital rolled in, total project cost was $1.5M: a $150k equity injection and a $1.35M loan carrying about $219k a year in debt service. On the seller’s $450k of SDE, less a $90k market salary for a general manager, coverage was a comfortable 1.65x.
On the documented $350k, the same loan covered at about 1.19x, under the roughly 1.25x lenders look for, before a single bad season. The lender said so plainly: it would underwrite the business’s documented cash flow, not the add-back schedule.
| Line | Asking price, seller’s SDE | Asking price, documented SDE | Renegotiated price, documented SDE |
|---|---|---|---|
| Purchase price | $1.35M | $1.35M | $1.1M |
| Total project cost | $1.5M | $1.5M | $1.25M |
| Equity injection (10%) | $150k | $150k | $125k |
| SBA loan | $1.35M | $1.35M | $1.12M |
| Annual debt service | $219k | $219k | $182k |
| SDE underwritten | $450k | $350k | $350k |
| Less market salary | $90k | $90k | $90k |
| Cash flow for debt service | $360k | $260k | $260k |
| DSCR | 1.65x | 1.19x | 1.43x |
Figures are rounded and illustrative. Loan math assumes a 10-year SBA 7(a) term at about 10.5% interest, and cash flow for debt service is SDE minus a market salary for whoever runs the business.
What the buyer did
The buyer took the QoE findings back to the seller as a written summary, item by item, rather than as a new number. That mattered: the seller could see that the price change came from his own ledger, not from a buyer looking for leverage. They settled at $1.1M, about 3.1x the documented SDE. Coverage at that price came back to roughly 1.43x, and the deal closed.
The QoE fee was real money for a deal this size, and it paid for itself many times over. The buyer’s one regret was paying for it after the LOI rather than pressure-testing the add-backs before making an offer. Two direct questions (how often do equipment repairs come up, and what does your spouse do day to day) would have flagged both issues before anyone signed anything.
Lessons
- Ask about the largest add-backs before the LOI, and price only on what you can document.
- Recurring “one-time” costs and family members who actually work are the two most common add-back problems.
- Present QoE findings line by line. A re-trade backed by the seller’s own records is much easier to agree to.
Landscaping and field-service checks
A starting checklist for any deal in this sector, alongside the general diligence list.
- Equipment repairs and replacements year by year: if a “one-time” cost shows up every year, it’s an operating cost.
- Who does the office work (scheduling, billing, collections), and what it costs to replace them.
- Seasonality: monthly revenue and cash for at least two years, and how much working capital the slow months need.
- Contract book: how much maintenance revenue is under written, renewing contracts versus handshake work.
- Crew retention and pay against the local market, since crews are the capacity you’re buying.
Practice it in the simulator
Work a fictional sample deal built around the same lesson, make the call, then compare your judgment with an experienced buyer’s. Opens in the app.
Greenway Landscape Co. (add-back inflation)Read more
Next case study: One customer, 41% of revenue: the deal a buyer walked away from
This guide is for informational and educational purposes only. It does not constitute legal, tax, financial, investment, or lending advice, and is not a substitute for advice from a qualified attorney, accountant, lender, or other licensed professional.