My CPA says running my personal cars, family vacations, and country club memberships through the business is normal tax strategy. How badly will this hurt me when a buyer scrutinizes my books during due diligence?

Question

Tyler Smith · Accepted Answer

It will hurt you significantly, both in credibility and in transaction friction. While your local CPA is focused on minimizing your tax liability, a buyer is focused on assessing the true, normalized cash flow of the business.

When you run personal expenses through the business, you artificially depress your reported earnings. To get credit for that cash, you have to request add-backs to prove your adjusted EBITDA. The problem is that every single add-back you claim becomes a point of debate during due diligence. A sophisticated buyer will view a long list of personal add-backs as a sign of sloppy financial discipline and potential hidden risks.

If a buyer suspects that your financial reporting is loose, they will dig deeper, drag out the process, or demand a higher working capital peg to protect themselves. They might even walk away entirely if they cannot trust the integrity of the ledger.

To fix this, you must run clean books for at least two years before you go to market. Stop paying for your personal lifestyle through the company operating account. Pay yourself a market-rate salary and distribute profits to your personal account first. Clean, unassailable financial statements are the fastest way to build trust and preserve your valuation.