Valuation readiness

What it is

Most owner-led companies report profit in a way that suits tax planning: owner pay is set for tax reasons, some personal costs run through the business, and one-time events land in ordinary expense lines. None of that is wrong, but it hides what a new owner would earn.

Valuation readiness rebuilds that picture. We work with you, and alongside your accountant, to produce:

• a three-year (sometimes five-year) summary of revenue, gross margin and operating profit, reconciled to your statements;
• a normalization schedule listing every adjustment, its amount by year, the reason, and the document that supports it;
• notes on revenue quality: recurring versus one-off, customer concentration, seasonality;
• a list of questions for your accountant where the treatment needs a professional decision.

The full method, with worked numbers, is in the guide to normalized earnings and add-backs.

Who it's for

This suits owners whose books are accurate for tax but hard for an outsider to read. Typical signs include:

• the owner's salary and dividends change a lot from year to year;
• family members are on the payroll;
• vehicles, phones or travel are partly personal;
• a big one-time event (a lawsuit, a move, a bad debt, a major repair) distorts one year;
• revenue is recorded in more than one entity.

What's included

1. Reconciliation check. Statements against corporate tax returns, GST/HST (and PST where it applies) filings, payroll filings and bank deposits. Differences get explained or flagged.
2. Normalization schedule. Each proposed adjustment with its evidence. Adjustments without evidence are listed separately as "unsupported", so you know which ones a buyer is likely to reject.
3. Owner compensation benchmark. A reasoned estimate of what it would cost to hire someone to do your job, so that the "owner pay" adjustment is defensible rather than aspirational.
4. Working-capital snapshot. Month-end receivables, inventory and payables over the last 12 to 24 months, because buyers increasingly negotiate a working-capital target into the price.
5. Asset register review. Equipment and vehicles listed with ownership and condition. The CRA notes that in an asset purchase the price is allocated across assets, inventory and goodwill, so a clean register helps both sides.
6. Questions file for your accountant and valuator.

Timeline

Plan on six to ten weeks for the first pass, depending on how many entities and years are involved. After that, we suggest updating the schedule at each year-end so it is never more than a few months stale when a buyer asks for it.

The bigger timeline point: changes to how you run the books (separating personal expenses, setting a market salary) only help once they show up in full fiscal years. That is why owners who start two or three years out end up with fewer adjustments to defend.

How results are measured

• The share of total adjustments that are documented, aiming for all of them.
• Whether statements, tax filings and bank deposits reconcile within a small, explained difference.
• How quickly you can answer a buyer's financial question with a document, measured in days rather than weeks.
• Your accountant's view: fewer open questions at each review.

Mistakes to avoid

• Adding back things a buyer will still pay for. If the business needs a bookkeeper, removing your spouse's bookkeeping salary is not an add-back; replacing it at market rate is.
• Calling recurring costs one-time. A "one-time" repair that happens every second year is a recurring cost.
• Leaving the cleanup until the sale year. Buyers weigh the most recent full years most heavily, and a sudden jump in profit the year you sell invites suspicion.
• Asking for a value before the numbers are ready. A valuation built on messy numbers costs more and convinces fewer people.

Related work

Valuation readiness pairs naturally with the exit readiness assessment and, closer to a sale, with deal preparation. Fees are on the pricing page. To talk about your numbers, call, text or email.