Recasting financial statements of a business is crucial to both the Owner and Prospective Purchaser because it gives you the actual Owner Benefit that the business is providing.
If you were to look at a businesses Tax Return and saw the Net Profit (or Loss) you would ask yourself how are they staying in business?
This is where Recasting comes in and gives us the actual owner benefit. This is done by Addbacks. Addbacks are all the items that can be added to the Net Profit, such as Depreciation, Amortization, Interest, Owners Salary, Professional Fees (Legal & Accounting), Cell Phone bill that is half used by the family, Personal Car expense, Meals & Travel, etc.
Example of a Recast of a Business:
Net Profit $21,178.00
Interest on a Loan 7,659.00
Owners Salary 78,500.00
Professional Fees 11,665.00
Personal Car Lease 5,460.00
Meals & Travel 2,356.00
Actual Owner Benefit $132,710.00
This should show you why Recasting is so crucial to get the true Owner Benefit.
When we Recast financials at Freedom Business Advisors, Inc. we like to use the last 3 years Tax Returns, Profit & Loss Statements and latest Balance Sheet.