Our corporate books are technically clean, but we have multiple sister companies sharing overhead, warehouse space, and employees. How do we cleanly untangle these shared operational costs to present a transparent Quality of Earnings report to a buyer?

Question

Tyler Smith · Accepted Answer

Sharing resources across sister companies is a common operational practice, but it creates massive red flags for a buyer during due diligence. To get top dollar, you must untangle these entities long before you take the business to market. Buyers want to see a clean, standalone operation that can survive on its own from day one.

Start by creating formal service level agreements and transfer pricing arrangements between your companies. Every shared employee, square foot of warehouse space, and software license must be allocated based on actual usage, not arbitrary estimates. This provides a transparent paper trail for the Quality of Earnings auditors.

You should run parallel, standalone profit and loss statements for at least twelve to twenty four months before entering the market. This proves the true operating margin of the entity being sold.

Use your Accountability Chart to clarify which employees belong to which entity. If key leadership team members are splitting their time, you must resolve this overlap. A buyer will not accept an organization where the Integrator or head of operations is divided between two different companies.

If you do not clean this up, buyers will assume the worst case scenario. They will apply a steep discount to your valuation to cover the anticipated costs of hiring replacement staff and securing independent facilities. Proactively untangling these relationships shows the company is a self sustaining asset, allowing you to secure a clean valuation under the Market Approach.