Selling a business is about trust and proof. Buyers, lenders, and their advisors look at your financials to decide how much your company is worth. If your books are messy, your exit price suffers.
The Problem With Mixing Personal and Business Expenses
Many owners run vacations, cars, and family perks through the business. This reduces taxable income and feels like a win. But when it is time to sell, the same strategy lowers the official profit of the company. Buyers will not pay for “hidden” profits unless they are properly documented.
Key takeaway: You can save money on taxes or you can maximize your exit value. It is rare to do both.
What Counts as a Legitimate Add-Back?
When preparing a business for sale, some expenses can be added back to show true profit. But only specific categories qualify.
Common legitimate add-backs include:
- Depreciation
- Amortization
- Income tax
- Interest on loans
- One owner’s salary and payroll taxes (~14%)
- Owner’s health insurance
- Owner’s retirement contributions
- Supplier rebates or one-time adjustments (such as PPP forgiveness)
Everything else requires strong documentation. If you cannot prove it, buyers will not accept it.
How Personal Expenses Lower Valuation
Every personal expense reduces your exit price. Buyers calculate value based on multiples of earnings.
Example:
- $50,000 of personal perks run through the business.
- At a 3x multiple, that lowers your sale price by $150,000.
Short-term tax savings often create long-term losses at exit.
How to Prepare for Sale With Clean Books
If you plan to sell in the next 2–3 years, start preparing now.
- Separate personal and business expenses.
- Keep documentation for legitimate add-backs.
- Work with an accountant to present financials buyers can trust.
Clean, transparent books make it easier for buyers to finance the deal and justify a higher price.
FAQ
Why do buyers care about clean books?
Because lenders and investors need to verify profits. Messy books create doubt, and doubt reduces offers.
Can I still run personal expenses if I plan to sell?
Not if you want maximum value. Every personal expense lowers your exit price.
What is the most important thing to do before selling?
Prepare accurate financial statements that reflect the true profitability of your business.
Final Lesson: Clean books are not just about accounting. They are about maximizing the check you receive when you sell. Every dollar you hide today could cost you three dollars tomorrow.
