sales@deal-studio.com
(800) 239-5085
Schedule a Demo
  • Home
  • Platform
    • Industry Websites
    • Professional Content
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
  • Marketing
    • Branding & Design
    • Digital Marketing
    • CBR Design
    • Social Media Graphics
    • Company Newsletters
    • Email Campaigns
  • Insights
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Contact Us
  • Home
  • Platform
    • Industry Websites
    • Professional Content
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
  • Marketing
    • Branding & Design
    • Digital Marketing
    • CBR Design
    • Social Media Graphics
    • Company Newsletters
    • Email Campaigns
  • Insights
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Contact Us
  • Home
  • Platform
    • Industry Websites
    • Professional Content
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
  • Marketing
    • Branding & Design
    • Digital Marketing
    • CBR Design
    • Social Media Graphics
    • Company Newsletters
    • Email Campaigns
  • Insights
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Contact Us
  • Home
  • Platform
    • Industry Websites
    • Professional Content
    • Lead Capture Tools
    • Sales CRM
    • Deal Management
    • Integrated Workflows
  • Marketing
    • Branding & Design
    • Digital Marketing
    • CBR Design
    • Social Media Graphics
    • Company Newsletters
    • Email Campaigns
  • Insights
  • About
    • Who We Are
    • Our Story
    • Our Team
    • Testimonials
    • Schedule a Call
  • Contact Us
Blog
Home Seller Articles Is Your “Normalized” P&L Statement Normal?
Seller ArticlesSelling a Business

Is Your “Normalized” P&L Statement Normal?

Deal Studio April 16, 2015 0 Comments

Normalized Financial Statements – Statements that have been adjusted for items not representative of the current status of the business. Normalizing statements could include such adjustments as a non-recurring event, such as attorney fees expended in litigation. Another non-recurring event might be a plant closing or adjustments of abnormal depreciation. Sometimes, owner’s compensation and benefits need to be restated to reflect a competitive market value.

Privately held companies, when tax time comes around, want to show as little profit as possible. However, when it comes time to borrow money or sell the business, they want to show just the opposite. Lenders and prospective acquirers want to see a strong bottom line. The best way to do this is to normalize, or recast, the profit and loss statement. The figures added back to the profit and loss statement are usually termed “add backs.” They are adjustments added back to the statement to increase the profit of the company.

For example, legal fees used for litigation purposes would be considered a one-time expense. Or, consider a new roof, tooling or equipment for a new product, or any expensed item considered to be a one-time charge. Obviously, adding back the money spent on one or more of these items to the profit of the company increases the profits, thus increasing the value.

Using a reasonable EBITDA, for example an EBITDA of five, an add back of $200,000 could increase the value of a company by one million dollars. Most buyers will take a hard look at the add backs. They realize that there really is no such thing as a one-time expense, as every year will produce other “one-time” expenses. It’s also not wise to add back the owner’s bonuses and perks unless they are really excessive. The new owners may hire a CEO who will require essentially the same compensation package.

The moral of all this is that reconstructed earnings are certainly a legitimate way of showing the real earnings of a privately held company unless they are puffed up to impress a lender or potential buyer. Excess or unreasonable add backs will not be acceptable to buyers, lenders or business appraisers. Nothing can squelch a potential deal quicker than a break-even P&L statement padded with add backs.

© Copyright 2015 Business Brokerage Press, Inc.

Photo Credit: DodgertonSkillhause via morgueFile

bbp
89
2609 Views
Do You Have an Exit Plan?PrevDo You Have an Exit Plan?April 8, 2015
Considering Selling? Some Important QuestionsApril 22, 2015Considering Selling? Some Important QuestionsNext

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recent Posts
  • How Can You Identify a Serious Buyer? March 17, 2023
  • Are You Cut Out to Own a Business? March 8, 2023
  • Can You Buy a Business Without Collateral? March 1, 2023
  • What is a Partnership Agreement? February 22, 2023
  • What Are Your Flaws? February 15, 2023
Categories
  • Blog 22
  • Buyer Articles 105
  • Buyer FAQ 15
  • Buying a Business 34
  • Content 1
  • Financing the Deal 7
  • General Business Brokerage 9
  • Marketing 6
  • Marketing for Business Brokers 1
  • Promotion 1
  • Seller Articles 296
  • Seller FAQ 35
  • Selling a Business 195
  • Uncategorized 2
  • Using a Professional 6
  • Valuation 14
  • Workflows 1

Automate, accelerate and elevate your deal making
Email sales@deal-studio.com
Phone (800) 239-5085
Request Media Kit
Platform
» Industry Websites
» Professional Content
» Lead Capture Tools
» Sales CRM
» Deal Management
» Integrated Workflows
Recent News
  • How Can You Identify a Serious Buyer?
    March 17, 2023
  • Are You Cut Out to Own a Business?
    March 8, 2023
  • Can You Buy a Business Without Collateral?
    March 1, 2023
Newsletter

Terms of use | Privacy Policy

© Copyright 2022 Business Brokerage Press, Inc. All Rights Reserved.