How Buyers Read Your Books and Find Owner Earnings

Start With Profit, Not Sales

A buyer asks one question: how much does this earn, and how many years of that am I willing to pay for? A company with seven million dollars in sales can still sell for about two million when margins are slim.

What Owner Earnings Means

For smaller companies, buyers add up what one working owner could take home, including salary, health insurance and perks. For larger firms with managers in place, they use earnings after a market salary for the owner.

Most Main Street businesses change hands at about two to three times that number.

Add Backs Buyers Accept

An add back is a one time or personal expense taken out of the statements to show the true picture, such as a one time legal bill or a family phone plan paid by the company. It has to be real and explainable.

Extra money that happened to arrive does not count. Selling a truck or taking out a loan is not operating income.

Owner Draws Are Not Earnings

Money moved from the business account to a personal one is not an expense and not automatically cash flow. A good recast sorts it out so the buyer sees the real figure.

Cash That Never Hit the Books

Income that was never recorded cannot be proven, so buyers do not pay for it. Saving twenty percent in taxes can cost two to three times as much in lost value.

In Hawaii, where the general excise tax applies to gross receipts, unreported sales also raise a compliance question that buyers and lenders will not ignore.

Why It Matters Before You List

If a buyer finds errors in diligence, everything else gets doubted. Stale items, like a vehicle long gone but still on the balance sheet, signal weak books, so update them first.

Next Steps

Ask your CPA for three to five years of recast statements. See the tax clearance guide and what a broker charges, then ask what your business is worth.