How do we systematically audit and eliminate discretionary owner expenses and personal add-backs two years before going to market so our normalized EBITDA is indisputable?

Question

Tyler Smith · Accepted Answer

Every dollar you report in defensible EBITDA can translate to four, six, or eight dollars in purchase price depending on your multiple. However, walking into diligence with a messy laundry list of subjective owner add-backs destroys your credibility and gives buyers leverage to re-trade the deal.

Two years prior to going to market, initiate an aggressive financial cleanup. Stop running personal perks, non-essential vehicle leases, club memberships, and questionable travel through the company. While these deductions may have reduced your tax liability in the past, they are toxic during institutional diligence. Buyers scrutinize every adjustment, and if your list of add-backs looks like creative fiction, they will question the integrity of your entire financial reporting system.

Conduct a formal normalization audit of your general ledger. Scrutinize owner compensation and family members on the payroll. Adjust salaries to true market rates for the specific seats they occupy on the Accountability Chart. If you own the commercial real estate housing your operations, set the lease agreement at fair market value so there are no rent normalization debates later.

Work with your financial team to produce at least twenty-four consecutive months of clean, boring, institutional-grade financial statements. When your historical trailing twelve months EBITDA requires zero apologies and minimal footnotes, buyers spend their diligence time validating your growth trajectory instead of dismantling your accounting.