One of the biggest benefits of owning your own business is the ability to reduce overall tax liability by deducting your business expenses. Unfortunately, this doesn’t paint a very flattering picture of your cash flow when you prepare to put your medical business for sale. Sellers can solve this dilemma by remembering to add back discretionary expenses – in other words, costs that don’t actually impact the performance of the business. From insurance write-offs to one-time expenses, here are some common add backs you don’t want to forget.
1. Health Insurance
Many business owners expense health insurance for themselves and their immediate family members. Today’s average family pays more than $13,000 for health insurance annually while health care costs continue to rise, according to the Kaiser Family Foundation. That’s a significant tax deduction. It’s also a significant hit to discretionary cash flow if you don’t remember to add it back to your financial statements.
2. Family Vacations
It’s not uncommon for business owners to write off a personal vacation as a business trip in order to take advantage of tax savings. So long as you didn’t conduct business while traveling – such as attending a required business conference or meeting with suppliers or customers – vacations can be considered legitimate add backs.
3. Personal Auto Costs
If you commute to work in a personal vehicle, it is perfectly legal to write off gas, maintenance, repairs, and other costs associated with the car. Of course, if the vehicle is also used for operating your non emergency medical transportation business, it does not qualify as an add back because it is an essential business expense.
4. Owner Salary
An owner who is not an active participant in the management of a business may be able to add back salary and other benefits received. Keep in mind that an owner or family member who plays a significant role in business operations will need to be replaced with another employee after the sale. As such, their salaries cannot be reinserted into cash flow.
5. One-Time Expenses
One-time expenses can be easily overlooked but may constitute a significant portion of your costs. Did you incur legal expenses for a non-ongoing issue such as an employee dispute? Did you pay for the repair of malfunctioning equipment or a vandalized vehicle? If you can provide documentation for non-routine costs, these expenses can be included in discretionary earnings.
Add backs are just one of many critical components of transportation business valuation. Consulting with a industry transaction advisor can ensure you make the most of your business expenses before and after a sale.