We have run several personal expenses, family member salaries, and real estate assets through our operating business for years. How do we clean up these intercompany transactions and owner perks during our exit runway so they do not kill our valuation?

Question

Tyler Smith · Accepted Answer

Buyers want to buy a clean cash-generating engine, not your personal tax-shelter vehicle. If your P&L is cluttered with family members who do not actually work, personal vehicles, club memberships, and real estate owned by a sister LLC, you are inviting due diligence nightmares. While you can add these back on an EBITDA normalization schedule, a sophisticated buyer will view a messy P&L as a proxy for messy operations.

Start cleaning this up at least twenty-four months before you go to market. Begin by paying market-rate rent to your real estate holding company, documented by a formal lease. This establishes a clean, arms-length transaction that a buyer can easily underwrite. Next, transition any non-working family members off the payroll. If they do work in the business, ensure their roles are on the Accountability Chart, they meet the GWC criteria, and their compensation matches market rates.

Run all personal travel, vehicle leases, and non-business expenses out of your personal accounts rather than the company ledger. While your CPA may have tolerated these write-offs for tax minimization, a buyer wants to see a normalized, GAAP-compliant operating margin. Eliminating these items early gives you two full years of clean trailing twelve month statements. This removes any debate about what is a legitimate business expense and what is owner benefit, giving you maximum leverage in valuation negotiations.