My experience handling a broker's significant accounting adjustment

searcher profile

August 23, 2020

by a searcher from University of Southern California in St. Louis, MO, USA

This is the second post I have published on my Business Insights page:

https://www.amscpacorp.com/post/accounting-adjustments-tip-1

I am going to try to post weekly.

Please let me know any feedback.

Sincerely,
Adam

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commentor profile
Reply by an intermediary
from Boise State University in 800 W Main St, Boise, ID 83702, USA
Just like anything else, you'll need to ask questions regarding adjustments for valuation purposes. Normalizing adjustments are standard and typical when preparing a business valuation. However, the adjustments must make sense and be "prove-able" by the seller to you as the buyer. Just because a broker, who may or may not understand business valuation or accounting, makes an adjustment is not necessarily a reason to run away. Get the financials and do your own analysis. Then if it doesn't pass the smell test, then run away.
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Reply by a searcher
from Harvard University in Fort Wayne, IN, USA
I’ve had similar experiences, especially with broker led manufacturing deals. One broker tried to convince me that every bit of maintenance over the past five years should be an add back because “they shouldn’t have to do that maintenance again for a long time”. Of course that added up to 20-25% of the Adj EBITDA each year.
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