How Personal Expenses Impact The Sale of Your Business
If you’ve ever owned a business, chances are you’ve tried to run as many personal expenses through it as possible. Your friends and family are probably tired of hearing you brag about writing off that nice dinner you just had all because you talked about work for five minutes. But hey, it’s a slick move. You’re a proud, savvy entrepreneur sticking it to the man. Still, your dinner guests might feel like the magic of your company is a little… cheapened.
I’ve even joked on dates about writing off our drinks since I mentioned work once or twice. For some reason, that line never seems to get the laugh I think it deserves.
All jokes aside, running some of your personal expenses through your business can be a perfectly legitimate way to reduce your tax bill. Building a business is hard, and it tends to bleed into your personal life. Sometimes that extra takeout meal really is what keeps you going to make sure next week’s payroll gets through.
But here’s the part people don’t think about: this isn’t just about taxes. Running personal expenses through your company can have a big impact when it comes time to sell, for better or worse.
When It Starts to Matter: The Exit Lens
What saves you money today could cost you six figures down the road.
Even though your accountant is working hard to reduce that net income number to minimize your tax bill, this runs directly against the story you want to tell a buyer. Since businesses are typically valued on a multiple of profits, you want your bottom line to look strong, not lean and stripped down.
Combining these contradictory goals is one of the key jobs we do as brokers through a process called recasting, using add-backs to arrive at a revised profit number that better reflects the real earning potential of the business. (Check out my article on other types of profit if you want to dive deeper into that.) It’s all about crafting a story in numbers that gives buyers a clear picture of what the business is really making.
Add-Backs Can Help… If You Don’t Push It
Add-backs are a core part of preparing a business for sale. Personal expenses are just one category we look at when calculating a revised profit figure. If you're working with a broker, they'll likely ask if there are any personal expenses you've run through the business.
The goal is to isolate expenses that aren’t essential to the company’s operations. Things like meals & entertainment, a portion of your cell phone bill, or partial use of a personal vehicle.
That said, this has to be done carefully. You can’t just throw in every expense you’ve ever run through the business. The litmus test is simple: would a new owner reasonably need to incur this expense if they took over? If not, add it back. If yes, leave it alone.
When Buyers Start Raising Eyebrows
Now that you know about add-backs, you might be thinking: “Perfect — I’ll just run even more personal stuff through the business and sort it all out later.”
Not so fast.
There’s a threshold for how much "noise" a buyer will tolerate in your books. If your financials are packed with personal add-backs, even if they’re technically justifiable, it can erode trust. A buyer starts to wonder if the numbers have been stretched too far. If what you’re reporting to the government and what you’re showing to a buyer look like two different universes, it becomes harder to get anyone comfortable signing a cheque. The challenge is you never know where that trust threshold will be, as each buyer comes with their own risk profile.
And that’s what a business sale really comes down to: trust. No deal is risk-free, and the entire M&A process is just a slow build-up of confidence between buyer and seller. The more doubt you introduce, even unintentionally, the harder it is to close.
How to Keep the Trust and Set Yourself Up Success
To be clear, running some personal expenses through your business isn’t a bad thing and doing everything you can to reduce your tax burden is still smart. Just don’t get greedy. The fewer unrelated expenses you have muddying your financials, the better off you’ll be when it's time to sell.
If you're working with a broker, they’ll help identify what’s appropriate to include as an add-back. But they can only work with what you give them. So even if you're not ready to sell yet, start tracking your personal expenses now. A simple spreadsheet highlighting the expenses that aren’t related to operations can make a huge difference when it’s time to prep for sale.
While you’re at it, keep the receipts as well. During due diligence, buyers will want to verify expenses. If you can’t prove them, they might start making their own adjustments to valuation.
Let’s say you have $20,000 worth of personal expenses you claim but can’t back up. That could mean $40,000–$60,000 off your sale price (based on a typical 2–3x multiple). That’s a painful penalty for not being organized.
In the end, running personal expenses through your business is part of the game. Just don’t let it cost you when it really matters. Keep it reasonable, keep it trackable, and when the time comes to sell, you’ll be in a far stronger position to get the price you deserve.
