We run a lot of personal and semi-business expenses through our company to minimize our tax bill. How does cleaning up these discretionary add-backs now prevent a buyer from chipping away our enterprise value during diligence?

Question

Tyler Smith · Accepted Answer

Every dollar of unrecorded or questionable expense reduces your EBITDA, which directly shrinks your valuation by whatever multiple the buyer applies. While your tax accountant loves write-offs, acquisition due diligence teams hate them. If your general ledger is cluttered with personal travel, vehicles, family members on payroll who do not work, and subjective consulting fees, you are forcing the buyer to build a massive list of adjustments to find your true profitability. During diligence, buyers will scrutinize every single add-back. If they find even one that is poorly documented or aggressive, they will lose trust in your entire financial reporting. This loss of trust leads to re-pricing or outright deal cancellation. You must clean up your financials at least twelve to eighteen months before going to market. Run clean, GAAP-compliant statements. Remove all non-business expenses and transition family members off the payroll. If a family member does work in the business, ensure they are placed on the Accountability Chart with a market-rate salary and that they GWC their seat. By delivering clean, audit-ready financials, you eliminate the friction that buyers use to justify discounting your price at the finish line.