We have run several family members on our payroll and leased vehicles through the company for years, which we know we need to clean up. How far in advance of our sale must we completely purge these personal expenses from our books to ensure a buyer does not discount our financial integrity?

Question

Tyler Smith · Accepted Answer

While owners often use legitimate tax-minimization strategies, running personal and family expenses through the business creates a messy trail for a buyer. Every personal cell phone plan, family member on payroll, and personal vehicle lease requires an add-back to calculate your true EBITDA. While a professional sell-side Quality of Earnings report can normalize these expenses, a high volume of add-backs can erode a buyer's trust and signal poor financial discipline.

To ensure a clean transaction, you should ideally begin purging these non-business expenses two to three years before your target exit date. This runway allows you to present at least two full fiscal years of clean, unadjusted financial statements. When a buyer looks at your profit and loss statements and sees zero personal expenses, it eliminates the need for complex reconciliations and reduces the friction in due diligence.

If you have family members on the payroll who are not actively working in the business, transition them out of their seats immediately. If they are working in the business, ensure their compensation is strictly at market rate and that their roles are clearly defined on the Accountability Chart with objective measurables.

For assets like company vehicles, either transfer the leases to your personal name or sell the vehicles to clean up the balance sheet. By presenting a clean ledger with minimal adjustments, you project a professional, institutional-grade operation that commands a higher valuation and instills confidence in sophisticated buyers.