What Is a “Healthy” Financial Report When Selling a Business?

When selling a business, a healthy financial report should clearly demonstrate the business’s underlying profitability and earning capacity.

Ordinary financial statements are generally prepared for accounting and tax purposes. Business owners may legitimately structure expenses and deductions in a tax-efficient way, which can result in lower reported accounting profit.

For a business sale, however, buyers want to understand the true, sustainable profitability of the business. This is where EBITDA becomes important.

What is EBITDA?

EBITDA = Earnings Before Interest, Tax, Depreciation and Amortisation.

A Normalised or Adjusted EBITDA report goes further by identifying legitimate adjustments, such as certain owner-specific expenses, non-recurring costs and other items that may not continue under a new owner.

Ordinary Financial Report→ Focuses on accounting and tax reporting→ Tax planning may result in lower reported profit

Normalised EBITDA Report→ Focuses on underlying business performance→ Provides a clearer picture of the business’s “true” maintainable profitability

A healthy EBITDA report should be clear, consistent and supported by financial records, helping prospective buyers better understand the earning capacity of the business.

Would you like to know more about EBITDA and how it may affect the presentation and value of your business?

Contact me for more detailed information about EBITDA and preparing your business for sale.