15. Prove What Is Business and What Is Personal

Clear separation so buyers are not buying your personal yacht payments

Problem Statement

Plenty of owners run a good business through accounts that also quietly pay for life. Phones, vehicles, travel, that fishing trip that somehow counted as “client entertainment”. It all feels harmless while you are at the helm. Then a buyer turns up and wants to know which expenses reflect the true cost of running the business. Suddenly your profit looks like a jelly that keeps changing shape.

Buyers expect some normalisation of earnings. What frightens them is not the odd personal expense. It is a set of numbers where no one can clearly separate business from lifestyle. That is when offers soften or become painfully conditional.

What An Owner Might Say

“If you strip out my personal stuff this business looks fantastic. I just need to remember what is what.”

“The accountant does year end adjustments. I assume buyers will figure it out the same way.”

“My vehicle, the bach internet and a few family wages go through the company. Everyone does it. Surely that is normal.”

Why It Happens

For many New Zealand owners the business has always been part of the family toolkit. When cash is tight, the company card fixes problems. When cash is strong, you reward yourself with a few perks through the books. The IRD line is one thing. The “does this make commercial sense to a buyer” line is another. That second line often arrives late.

Accountants usually focus on tax compliance plus year end reporting. They may flag certain items as personal or private use. Although unless you have asked specifically for a buyer ready view, your reports are unlikely to show a clean, consistently adjusted profit figure. You end up with management accounts that reflect day to day reality, and advisory conversations that rely on “back of the envelope” adjustments.

There is also a habit element. Once a cost has always been coded to the business, it is easy to keep doing it. New vehicles, family phones, travel bolted onto conferences, part of the house internet. Each item feels small. Over time they add up to a material gap between statutory profit and the underlying earnings a buyer needs to see.

In my opinion there is a deeper reluctance as well. Separating business and personal spending can feel like giving up a perk of ownership. When you have worked hard for years, those small comforts feel earned. Preparing for exit asks you to trade some of that flexibility for a clearer, more valuable business story.

What To Do About It

Start by building a proper normalisation schedule. Work with your accountant to list every expense that has a personal element or that would definitely disappear under a new owner. Owner salaries that are above or below market. Family members on the payroll who do not work in the business. Personal vehicles, sport sponsorships, club fees, travel with a holiday bolted on, home utilities, one off legal costs that relate to personal matters.

For each line, decide how it should be treated. Some will be removed completely as non commercial. Others will be partly adjusted where there is genuine business use. For example, a phone bill might be split, or a vehicle cost adjusted to reflect private kilometrage. Be conservative. Buyers are happier when adjustments look modest rather than heroic.

From that exercise, create an “adjusted EBITDA” view for the last three to five years. The point is not to manufacture a fantasy number. The point is to show a realistic picture of business earnings if a competent owner paid themselves a market salary and did not run personal lifestyle through the accounts. This becomes one of your key sale documents.

In parallel, clean up future behaviour. The closer you are to your expected exit window, the less personal spend should hit the business at all. Shift non business costs back into your own life. Pay for genuine personal items out of drawings or dividends. Tidy vehicle arrangements. Move obviously private subscriptions off the company card. Each month of clean trading gives buyers more confidence that the adjusted profit is not a theoretical construct.

Be especially careful with staff optics. If team members see a constant flow of obviously personal spending through the business, they will talk. Those stories often reach buyers through informal channels. Better that the culture signals professionalism. Owners can still reward themselves, just in ways that make sense to any future shareholder.

How To Keep The Momentum

Normalisation is not a one off spreadsheet. It should become a regular lens on your performance. Once a quarter, review your management accounts with your adviser and update the adjustment schedule. Note any new items. Remove adjustments that no longer apply. Over time you will see both statutory and adjusted profit trends, which is exactly what buyers and banks look for.

Bring your leadership team into the story at the right level. They do not need every detail of your personal finances. They do need to understand that the business is moving toward cleaner separation so that results better reflect commercial reality. This helps when you say no to new “grey area” spending. The answer becomes “we are preparing for sale, this needs to stay out of the company” rather than “because I said so”.

Document your approach. A short paper that explains your normalisation method, lists the main adjustment categories and shows worked examples will be gold during due diligence. You can hand it to a buyer’s adviser as a starting point rather than defending every line through scattered emails. That level of transparency builds trust.

Also keep an eye on owner rewards in the round. As you strip personal items from the accounts, you may choose to adjust drawings or salary so that your total package still reflects your effort. Do that consciously. You are swapping flexible fringe benefits for clearer headline numbers, not punishing yourself. Buyers like seeing owners who pay themselves realistically rather than relying on perks.

Golden Nugget

“Every personal cost you pull out of the business today adds a little to the price a buyer can justify tomorrow.”

How RegenerationHQ can help

RegenerationHQ focuses on helping owners exit well, lead better and build business value in practical, human ways. That includes getting your financial story ready for scrutiny so it supports rather than undermines your sale. In my view clear separation of business and personal is one of the quietest yet most powerful shifts you can make.

Support often begins with a calm review of your current accounts alongside your accountant. Together we map where lifestyle spending appears, where owner remuneration sits compared with market levels, and how buyers are likely to view your existing profit. From there we help you shape a normalisation schedule, a cleaner reporting rhythm and simple language you can use when explaining adjustments.

We also work with you on the behavioural side. Saying no to long standing habits, reshaping how you reward yourself, guiding conversations with family members on the payroll and signalling to staff that the business is maturing financially. All of that ties into RegenerationHQ’s broader exit preparation work, which keeps owners focused on decisions that genuinely lift valuation rather than cosmetic changes that only look tidy.

The result is a set of accounts where any sensible buyer can see clearly what they are getting. No mystery yachts in the numbers. Just a business that pays its way, rewards its owner fairly and can show a clean line between personal life and commercial performance.

If you want a steady guide beside you while you get ready for one of the biggest decisions of your working life, RegenerationHQ is ready to help you walk that road with clarity and confidence.