Recasting Your Financials for a Sale
Work this with the Business Valuation Calculator.
Why Recasting Exists
Owner-run books are usually built to minimize tax, which is the opposite of what a buyer and their lender want to see. Recasting bridges the two: it restates your profit-and-loss to show what the business truly earns for its owner, the figure buyers actually price a multiple against. Done honestly, it is not spin; it is translating an owner's tax-optimized statements into the true-earnings language the buyer's side speaks.
The Add-Backs That Survive
The defensible adjustments are the ones you can document: an owner's salary restated to a market wage, genuinely one-time expenses, discretionary or personal costs run through the business, and non-cash items like depreciation. Each needs a paper trail, because the buyer's lender will test every line. An add-back you cannot prove is one the lender strikes, and a struck add-back is earnings you will not be paid for.
The Add-Backs That Don't
The adjustments that backfire are the wishful ones: routine repairs relabeled one-time, an owner's replacement wage understated to inflate earnings, or revenue that plainly walks out the door with you. Aggressive recasting does more than fail on its own line; read as a credibility problem, it taxes the entire file and makes a buyer question the numbers that were honest. Claim only what you would be comfortable defending across the table with the documents in hand.
Clean Books Beat Clever Books
The strongest financial file is three years of statements that tie to the tax returns, revenue broken out by customer, and a chart of accounts a stranger can follow without a guided tour. If the books need cleanup, do it before you list, not during diligence: earnings restated while a buyer is watching are earnings discounted in the negotiation that follows. The buyer's diligence page on this site is the same checklist read from their side; work it from yours first.
SDE or Adjusted EBITDA
Which earnings measure your buyer uses depends on who they are. An owner-operator financing an acquisition typically works in seller's discretionary earnings, which credits back the owner's full compensation; a consolidator sizing a platform usually works in adjusted EBITDA, which does not. The multiple attaches to whichever measure applies, so knowing both, and which one the buyer across the table will use, is worth real money. The buyer-side valuation tools carry the cited multiple bands that sit on top of each.
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