By Jason J. Loven, CPA, CCIFP®

When buyers kick the tires of a potential business acquisition, they usually request a three-year past earnings history. But this report doesn’t always tell the whole story: non-recurring expenses (i.e., expenses the new owner shouldn’t expect to encounter) could make these earnings appear less impressive than they actually are.

So if you’re planning to sell your business, consider including a list of the following non-recurring expenses with your financial statements:

Inventory write-offs

Let’s say you had to throw out thousands of pre-printed labels because of changing regulations, or that you had to ditch an order of damaged goods. These types of write-offs aren’t likely to happen on a regular basis, so be sure to point them out to potential buyers.

Discretionary non-operating expenses

You can’t assume that your business’s future owner will run the show just like you, especially when it comes to non-operating expenses, such as season tickets for sporting events, company vehicles, and travel-related costs. For example, you may have entertained clients at an executive suite at Target Field, but your successor may not see the value in this expenditure. Identifying these types of expenses can show potential buyers a straightforward pathway to an immediate profit increase.

Excessive salaries

The salaries of a business’s owners and officers can affect its bottom line. So if a salary in your company could be considered excess or if a lower one could replace it, consider making note of this for potential buyers. By doing so, you can better illustrate your company’s cash flow.

Fringe benefits

Do you provide health and dental coverage, a retirement plan, or pension plan contributions for your employees? You may see these benefits as essential, but a potential buyer may think differently. For this reason, consider detailing the costs of each.

And then there’s recurring revenue

Another way to support your asking price is to call out any sources of recurring revenue. For example, if you have a backlog or annual contracts, make sure potential buyers are aware of these so they can understand your business’s potential.

There’s more to think about

Determining which expenses are truly non-recurring can be tricky. And while including a listing of such with your financial statement is a great place to start, there’s more to consider when evaluating your business. So if you have questions about your business or would like to learn more about this topic, feel free to give me a call.