We run many personal expenses and discretionary bonuses through the business, which makes our true profitability look artificially low. How do we normalize our financial statements on our exit runway so a buyer accepts our add-backs?

Question

Tyler Smith · Accepted Answer

Buyers look at personal expenses with extreme skepticism. If your financials are cluttered with discretionary bonuses, family members on the payroll who do not work, or personal travel, a buyer will discount these add-backs, which directly reduces your enterprise value. To fix this, you must begin normalizing your financial statements at least two to three years before you go to market. Work with your finance seat to create a clear register of all non-operating expenses. This should be a core component of your Step by Step Exit Business Integrated Readiness review. Every add-back must be supported by bulletproof documentation. If you claim a family member payroll is an add-back, you must prove their seat on the Accountability Chart is redundant or that their salary is above market rate. If you claim personal travel is an add-back, keep receipts that clearly separate business travel from personal trips. Better yet, stop running personal expenses through the business entirely during your exit runway. Presenting clean, standardized financial statements that require minimal adjustments builds massive trust with buyers and ensures you get paid for every dollar of true profit your company generates.