We run several personal and lifestyle expenses through the business, which our accountant says we can just add back to our EBITDA. How do we clean up these discretionary expenses on our exit runway so a buyer does not challenge our add-backs during due diligence?

Question

Tyler Smith · Accepted Answer

While add-backs are a standard part of M&A transactions, sophisticated buyers scrutinize them aggressively. If your discretionary expenses are excessive or poorly documented, a buyer will reject them, directly reducing your enterprise value. To clean up your financial reporting, you must start preparing clean, institutional-grade financials at least two to three years before you go to market. This means systematically removing personal expenses from the business entirely. First, conduct an internal audit of all owner benefits, including personal vehicles, family travel, and non-business club memberships. For any expense that cannot be strictly justified as an essential business operation, transition it to your personal bank account. Second, for the legitimate business expenses that will not transfer to a buyer, ensure you have immaculate documentation. Work with your financial team to create a dedicated ledger for potential add-backs. Every single entry must have a clear invoice and a written explanation of why it is an owner-specific, non-recurring cost. By presenting clean books with minimal, well-documented add-backs, you build trust with the buyer's due diligence team. This transparency reduces transaction friction and protects your negotiated purchase price.