The Role Of Add Backs When Selling Your Business

If you own a small business, you know how important it is to plan ahead. This is particularly true when it comes time to make your exit from a business located in Washington State. At the time you go to market, you may find the market flooded with similar businesses for sale. This requires you make certain you understand that what you do now will affect what price you can ask then.

Selling your business is a big move. Make certain you are laying the groundwork at least two years before the actual listing. This gives you time to consider the effect such things as one-time and personal expenses will have on the worth of your company. A potential owner will look hard on this particular aspect – known as add-backs, before even considering purchasing.

What Are Personal And One-Time Expenses?

When a potential purchaser examines businesses for sale, he or she looks at the worth of the business. A business valuation provides the interested parties with the stated value of the company. At the heart of the valuation is the cash flow. To get a complete picture of this, the potential buyer also needs to look at the type of expenses an owner has. This includes both personal and one-time expenses.

Excessive personal expenses can accrue when owners use the funds of the store as their personal piggy bank. A more reasonable owner does have personal costs associated with the business. He or she will be sure to document them in minute detail. This will provide interested parties in Washington State with sufficient information to obtain an actual picture of the business and its future cash flow potential.

Personal and one-off expenses vary. Among the more common ones are:

  • Tax deductions – for your own and other family member’s work in the business
  • Moving cost – usually a one-off
  • Health insurance – for the owner and often the family
  • Vehicle costs e.g. gas, repairs, maintenance
  • Cell phones
  • Vacations declared to be business trips

These are all added backs.

Businesses for Sale: The Impact of Add-Backs

Add backs are legal expenses. They also come under serious scrutiny by any potential purchaser of any small business. Make sure you, as a responsible owner and potential seller, document them carefully, accurately and in detail. This will help to prove that the expenses are indeed legitimate in every sense of the word. They will also help you and your Washington State business broker seal the deal, triumphing over other owners of businesses for sale who fail to understand the need for rigid documentation of personal and one-time expenses.

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