Proprietary Deal Messy Financials

January 19, 2026

by a searcher from University of Virginia-Darden - Darden School of Business in Charlottesville, VA, USA

All, I've looked at several proprietary deals, and I'm running into the problem of messy financials. Specifically, I'm looking at how to handle financials where there isn't a salary/compensation line for the owner/operator. In one case, there was a net income or retained earnings line, but it was too low to be called the compensation the owners were getting. It is possible their compensation was included in the labor line, but that was still questionable. I know I'll really need to crack into the add backs, but before getting to that level of diligence, I'd love to hear examples of how others have handled that.

Reply by a professional
from Columbia University in Fairfax, VA, USA

It's going to be tough to reverse engineer it from the P&L alone. The only reliable approach I've experienced is to ask the seller (or their CPA) to explicitly walk through how the owner was paid and then reconcile that with source documents (tax returns, W-2s, payroll, etc.). Otherwise, it's going to be tough to get to a reliable EBITDA / SDE number, because owner comp can be buried in all sorts of line items. I've seen it rolled into "Labor" or "G&A" with no breakout, partially run through distributions, masked by below market comp paired with discretionary expenses. I've even seen once where the owner was living off cash flow that never hit the P&L cleanly. As a very rough estimate, you could just model a conservative proxy for owner comp and treat anything above that as upside pending diligence.

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