We run a lot of personal and semi-business expenses through our company to minimize our taxes, but we know this will complicate due diligence. How do we clean up our discretionary spending on our runway so a buyer sees a clean, honest EBITDA?

Question

Tyler Smith · Accepted Answer

Running personal expenses through your business is a common tax reduction strategy, but it is a major liability when preparing for an exit. While your accountant can attempt to add back these discretionary expenses to show your normalized earnings, buyers look at heavy add-backs with deep skepticism. To secure the highest valuation, you must clean up your spending long before you go to market.

At least two years before your planned exit, stop running discretionary personal expenses through the business ledger. Transition to a clean corporate accounting model where only legitimate operating expenses are recorded. For any remaining legitimate owner-discretionary expenses, maintain meticulous documentation, clear receipts, and written explanations.

A clean, transparent profit and loss statement drastically reduces friction during due diligence. It gives the buyer confidence in your financial data and eliminates the need for endless negotiations over the validity of your add-backs. By presenting clean, uncomplicated financial books, you protect your valuation and prevent buyers from using messy ledgers as an excuse to chip away at your purchase price.