Glossary · Reading the business
Disallowed expense
In short
An expense not allowed for tax deduction or, in valuation, one a buyer wouldn't incur. It's an "add-back" to show true profitability.
What it means in a deal
In an acquisition, a disallowed expense typically refers to an "add-back" that your accountant identifies during due diligence. These are non-recurring or discretionary expenses of the seller (e.g., excessive owner salary, personal travel) that a new owner wouldn't have. Adjusting for these gives you a more accurate picture of the business's true profitability (SDE/EBITDA).
Related terms
Common questions about Disallowed expense
- How does business overhead expense insurance differ from key-person life insurance?
- What kind of everyday expenses can working capital cover?
- Which pre-closing business expenses can count towards equity?
- Can working capital be used for unexpected business expenses after closing?
- Can I use SBA 7(a) loan funds for personal expenses?
- What types of expenses can an SBA 7(a) loan cover?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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