Owner Perks / Personal Expenses
Owner Perks / Personal Expenses owner perks are personal expenses run through a business that do not directly contribute to generating revenue or supporting core operations.
These expenses represent costs that benefit the business owner personally but would not be incurred by an arm's length owner managing the business.
| Category | General |
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How Owner Perks / Personal Expenses Works
Owner perks represent a significant opportunity for value adjustment during business valuations. These personal expenses flow through company financials but do not reflect true operational costs that a new owner would inherit.
In mergers and acquisitions, these expenses are carefully scrutinized and typically categorized as 'add-backs' - adjustments that normalize earnings and demonstrate the business's genuine earning potential.
The primary goal is to identify and quantify expenses that do not contribute to the core business operations, thereby providing a more accurate representation of the company's financial performance.
Key Points
- •Personal expenses reduce enterprise value by masking true business earnings
- •Add-backs can increase Seller's Discretionary Earnings (SDE) by 15-30%
- •Documentation and objective analysis are critical in substantiating add-backs
- •Common owner perks include personal vehicles, family payroll, and non-business travel
- •Buyers will closely examine and potentially challenge claimed add-backs
Frequently Asked Questions
Related M&A Concepts
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