Our tax accountant keeps telling us to minimize our net income to save on taxes, but our exit advisor says we need to show maximum profitability. How do we resolve this conflict during our three-to-five-year runway without overpaying taxes today or killing our future valuation?

Question

Tyler Smith · Accepted Answer

This is a classic conflict for business owners preparing for an exit. For years, your tax professional has worked to legally minimize your net income to reduce your tax liability. However, when you prepare to sell, buyers calculate your valuation based on a multiple of your earnings, specifically EBITDA. Minimizing your taxes by suppressing your reported earnings directly reduces your ultimate purchase price.

To resolve this during your three-to-five-year exit runway, you must shift your focus from tax avoidance to value maximization. Clean, audited, and GAAP-compliant accrual financials are critical for attracting institutional buyers. You need to start showing clean, maximized earnings on your financial statements at least three years before going to market.

While you will pay more in corporate taxes during these transition years, the return on that investment is massive. Every dollar you add to your bottom line is multiplied by your valuation multiple at sale. If your business sells at a six-times multiple, every dollar of tax-saving write-offs you eliminate adds six dollars to your purchase price. Working with an advisor to clean up your books and minimize aggressive personal add-backs ensures a smooth due diligence process and prevents buyers from demanding steep price reductions.