Our tax accountant has been aggressively minimizing our tax liability for a decade, which makes our net income look artificially low. How do we recast our financial statements during our exit runway to prove our true operating profitability to a cynical private equity buyer?

Question

Tyler Smith · Accepted Answer

Buyers do not look at your tax returns to determine enterprise value; they look at adjusted EBITDA. To prove your true operating profitability, you must work with a transaction advisory firm during your exit runway to perform a formal quality of earnings assessment. This process systematically recasts your financial statements by identifying and documenting all owner discretionary expenses, non-recurring costs, and market rate adjustments. You must separate your personal lifestyle expenses from the legitimate operating expenses of the business. This means adjusting your own compensation to market rate for a hired executive, removing personal vehicle leases, and separating any family members on the payroll who do not have a clear GWC seat on your Accountability Chart. Every single adjustment must be backed by ironclad documentation. If you claim an expense is non-recurring, you must prove why it will not happen under new ownership. Use your weekly EOS financial Scorecard metrics to track these adjustments in real time. Do not wait for the buyer to start due diligence to do this recasting. A proactive quality of earnings report shows buyers that your financials are transparent, predictable, and free of founder distortion. This pre-emptive transparency builds immediate credibility, reduces the buyer's perceived risk, and protects your premium valuation from being chipped away during the final negotiations.