We are two years from selling and want to show a normalized operating margin, but our current ledger is tangled with legacy real estate leases held by our sister companies. How do we cleanly present these run-rate adjustments to avoid buyer discounts?

Question

Tyler Smith · Accepted Answer

Buyers hate messy ledgers. If your operating entity is paying rent to a sister company at above-market or below-market rates, it distorts your true profitability and invites intense scrutiny during due diligence. You must clean this up immediately on your exit runway. Do not wait for the buyer's forensic accountants to find these discrepancies and apply a heavy discount.

Start by obtaining an independent, third-party market rent study for your real estate. Adjust your current lease agreements to reflect true market rates immediately. This establishes a clean, normalized history of occupancy costs. Next, work with your accounting team to draft a formal schedule of earnings adjustments, commonly known as EBITDA adjustments. This schedule must clearly separate your core operating expenses from any non-operating sister company transactions.

Use your weekly Level 10 Meeting to monitor your progress on this clean-up. Treat your financial normalization as a corporate Rock. Your goal is to present a single, clean operating ledger that requires zero explanation or mental gymnastics from a buyer. When your financials are pristine and completely separated from other entities, you build trust. Trust translates directly into deal speed and a higher valuation at the closing table.