We have a lot of personal expenses and non-operating assets mixed into our business accounts. How will a professional business valuator handle this, and what should we do to prepare?

Question

Tyler Smith · Accepted Answer

Professional buyers and valuators look right through personal expenses and non-operating assets, but having them mixed in raises major red flags about your operational discipline. When a valuator applies the Income Approach, they project your future cash flows based on clean, historical data. They will perform a process called normalizing earnings, which adds back personal salaries, non-business vehicles, and personal travel. However, a messy ledger suggests a lack of control, which increases the buyer's perceived risk and lowers your multiple. To prepare for a clean exit, you must untangle your personal life from your balance sheet at least two to three years before you go to market. Run your business as if it were a public company. Your financial data should be clear, transparent, and accurate enough to stand up to a rigorous Quality of Earnings audit. Your weekly EOS® Scorecard should match your financial reality, demonstrating that your leadership team manages the company using objective data rather than gut-feel adjustments. Clean books show buyers that your business is run professionally, reducing their risk and allowing them to apply a much lower discount rate to your projected future cash flows.