Some personal expenses run through the business. How should I document them before a buyer reviews our accounts?

Question

Tyler Smith · Accepted Answer

Separate personal spending from business spending now, then prepare a documented schedule of historical items you believe should be excluded when evaluating ongoing earnings. Keep the original accounting records intact and have your accountant review both the classifications and any tax implications.

For each proposed adjustment, record:
- The transaction date, amount and general-ledger account.
- The invoice, receipt or other supporting evidence.
- The business or personal purpose of the expenditure.
- Why the cost would not continue under a new owner.
- Whether a replacement cost would remain after your departure.

Do not assume an expense qualifies for an adjustment merely because you approved it or benefited from it. A vehicle, travel expense or membership may support business activity. Similarly, removing your compensation entirely would ignore the cost of replacing any work the business still needs performed.

Keep this schedule separate from the reported financial statements and reconcile it to them. A buyer should be able to trace each proposed adjustment back to a recorded transaction without relying on your recollection.

Discuss uncertain items with your advisor before including them in marketing materials. Unsupported adjustments can invite challenges to the earnings figure used in negotiations.

The priority is accurate bookkeeping and a transparent explanation of ongoing costs, not the largest possible adjustment total. Cleaning up current spending also creates a clearer reporting history while you prepare for sale.