20. Strip Out Non-Core Costs That Obscure Profit

Personal perks and one offs that make profit look worse than it is

Problem Statement

Plenty of owners know the business is more profitable than the accounts suggest. You see the personal ute, the family phones, the one off legal saga, the experimental project that went nowhere. A buyer sees a P and L with modest earnings then quietly runs their valuation off that number.

You can talk about add backs until the cows come home. If non core costs are scattered through the ledger with no clear pattern, buyers begin to wonder what else they are missing. Uncertainty tends to flow one way. It rarely increases your price.

What An Owner Might Say

“If you strip out my perks this thing really hums. I just need to remember what they all are.”

“We have had a couple of ugly years with one offs. Surely buyers will see that for what it is.”

“The accountant understands the adjustments. I am hoping buyers will see it the same way.”

Why It Happens

Non core spend usually starts small. A mixed use vehicle here, a partly personal trip there, the odd family member on the payroll. The business grows. Habits stay. New costs join the pile during busy seasons when no one has the energy to push back.

One off items also creep in over time. A rebrand that cost more than planned, a legal dispute, a dud marketing experiment, a bad hire, a system that never quite worked. Each one has a story. Once the pain fades, the cost remains as a number that flattens your historic profit.

Most owners focus on tax and cashflow, not on future buyer perception. As long as the accountant can explain adjustments at year end and the bank is calm, it feels fine. Exit preparation asks a different question. Could an outsider easily separate business performance from lifestyle plus misadventure.

There is also a human side. Owners often feel they have earned some perks after years of graft. In my view that is fair. The trick is to enjoy rewards without building a fog around the true earning power of the business you plan to sell.

What To Do About It

Begin with clarity, not guilt. Sit with your accountant and pull three to five years of P and Ls. Highlight everything that is clearly personal, partly personal or genuinely one off. Vehicles, home office, club memberships, travel with holidays attached, family wages, big advisory projects, unusual legal matters, redundancy rounds, one time write offs.

Create a simple normalisation schedule. For each line, note the amount, year, why it is non core and whether it is ongoing or a one time event. Mark personal items separately from business one offs. This becomes the backbone of your adjusted EBITDA story.

Next, tidy how you code non core items from today onward. Give them clear account codes so they are easy to identify. For example, owner benefits, non recurring project costs or exceptional legal fees. The goal is not to hide them. The goal is to show that you recognise them for what they are.

Then start trimming. Decide which personal costs should stop hitting the business at all as you head toward sale. Move obvious lifestyle expenses back into your own pocket. Clean up family wages that have no real role. Reset any owner salary that is wildly above or below a market level so the adjusted figure does not need heroic explanation.

For one off items, focus on narrative. Some exceptional costs actually make your story stronger. For example, a major system implementation, a strategic rebrand, a deliberate restructuring. Prepare a short explanation that links each big one off to future benefit. Buyers are more forgiving when they can see the logic.

Be careful not to overreach. Labelling every disappointing expense as non core makes buyers suspicious. If something keeps happening it is not a one off. It is a pattern. Better to fix the pattern than argue about adjustments.

How To Keep The Momentum

Build normalisation into your regular reporting. Each quarter, update the schedule with any new personal or exceptional spend. Review it alongside your management accounts so you are always clear on both reported and adjusted profit. This stops you scrambling to remember details three years later.

Share a high level view with your leadership team. They should understand that you are moving toward cleaner numbers for exit. This makes it easier to say no when someone suggests putting a clearly personal cost through the business or when a “special project” starts to balloon.

Track owner drawings and benefits as a package. Many owners quietly accept a low salary because they enjoy flexible perks. That is fine for a season. As you move toward sale, shift reward into transparent salary or dividends. Buyers strongly prefer businesses where owner compensation looks normal rather than buried in vague lines.

Work with your adviser to present adjusted results in a buyer friendly format. That might include a table showing statutory EBITDA, add backs by category and a reconciled adjusted EBITDA for each year. Keep the explanation steady across documents so brokers, buyers and lenders all see the same story.

Golden Nugget

“Every non-core dollar you remove from the accounts today is a dollar you do not have to explain nervously in front of a buyer tomorrow.”

How RegenerationHQ can help

RegenerationHQ works with owners who know there is more profit in the business than the raw numbers show, yet want to handle that truth in a way buyers will respect. Support often starts with a practical review of historic accounts, mapping personal perks and genuine one offs into a clear normalisation schedule.

From there, RegenerationHQ helps you decide which costs to strip out now, which to reframe, which to leave in place with a strong narrative and how to reflect all of that in forecasts and valuation discussions. The aim is not to invent profit. The aim is to reveal the real earning power of the business in a way that stands up under due diligence, so serious buyers can justify paying properly for what you have built.

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.