We run a lot of personal and discretionary expenses through our operating business to minimize our current tax bill. How do we clean up these discretionary expenses on our exit runway so a buyer accepts our proposed adjusted EBITDA without intense friction?

Question

Tyler Smith · Accepted Answer

Many owners run personal vehicles, family travel, and discretionary bonuses through the business to reduce their taxable income. While this is common, trying to explain dozens of complex owner add-backs to a buyer during due diligence creates distrust and slows down the transaction. You should begin cleaning up your discretionary spending at least two to three years before you intend to go to market. The cleanest way to present your financials is to have zero add-backs. Stop running non-essential personal expenses through the business operating accounts. Pay yourself a market-rate salary and handle your personal life through your personal accounts. If you must keep certain expenses on the books, document them with meticulous detail. Create a specific ledger for owner-related expenses that are entirely discretionary and can be easily removed by a new owner. Ensure your CPA can tie every single one of these expenses to a clean receipt and a clear explanation. When a buyer sees a clean profit and loss statement with minimal, highly documented add-backs, they feel confident in your financial integrity. This transparency speeds up due diligence, reduces the risk of re-pricing, and shows that your business runs on institutional standards.