If you are beginning to explore selling your franchise business, one of the most important early steps is making sure your financial information is clean, accurate, and ready to present to potential buyers. The quality and supporting documentation of your financial statements directly influence your business’s valuation.
In our work, we often find that franchise and restaurant owners lack thorough financial records and instead rely primarily on maintaining cash on hand. While this approach may suffice for basic cash monitoring, it does not provide the level of financial detail buyers rely on when evaluating a potential acquisition, and it can negatively impact business value.
Why Your Financials Matter to Buyers
Qualified buyers, lenders and brokers want accurate financials and increasingly expect accounting records that clearly show how the business performs and sustains results over a multi-year period.
In most transactions, buyers look for:
- Clean, accrual-based financial statements
- Clear reconciliation of revenue, expenses and inventory
- Detailed supporting schedules
- Transparent owner add-backs and adjustments
- Proof of profitability trends over time
When this level of visibility is missing, buyers may discount the business’s value, request price reductions, or walk away altogether.
How Owner Add-backs Impact Business Value
Identifying and documenting owner add-backs is a critical step in preparing your franchise for sale, allowing buyers to see the business’s true operating cash flow. In several franchise transactions, we have seen accurate add-back schedules boost valuation by $100,000–$150,000 or more, especially for multi-unit operators or those with high discretionary spending.
Add-backs are expenses that will not continue under new ownership and typically include non-recurring, discretionary, non-operational, and accounting-related costs. Adjusting for these items helps buyers evaluate normalized cash flow, which is the foundation for most valuation methods used today, including seller’s discretionary earnings (SDE) or EBITDA multiples.
Common examples of add-backs include:
- Owner salary and family payroll
- Personal or discretionary expenses
- Depreciation and amortization
- Interest expense
- One-time legal or consulting fees
- Extraordinary repairs (e.g., storm damage, HVAC replacement)
- Charitable or promotional spending is not required for operations
- Business taxes
- Non-cash adjustments
Many of these items are recorded above the net income line and can artificially depress profitability unless they are correctly reclassified.
Preparing to Sell Your Franchise Business with Grassi
Grassi’s Franchise Services team works with business owners to prepare for transactions. Our support includes normalizing financial statements, identifying and documenting owner add-backs, improving reporting consistency and preparing SDE or EBITDA calculations. We also assist with valuation discussions alongside buyers and brokers and help ensure the business presents with the same professionalism it demonstrates operationally.
Our objective is simple: help you maximize your sale price and navigate the process with confidence. If you are thinking about selling your franchise, whether in the near term or several years down the road, early preparation can make a meaningful difference. Contact a Grassi advisor to begin laying the groundwork for a well-positioned, value-driven transaction.
Frequently Asked Questions
Q: What are owner add-backs, and why do buyers care about them?
A: Owner add-backs represent expenses that will not continue under new ownership. Buyers rely on them to understand the business’s true operating cash flow.
Q: How early should I start preparing my financials for a sale?
A: Ideally, preparation begins 12 to 24 months before a sale. Clean historical financials reduce buyer risk and support stronger valuations.
Q: What documentation supports add-backs during buyer diligence?
A: Invoices, payroll records and written explanations are typically required to substantiate each adjustment.
Q: Can poor financial presentation reduce my sale price even if the business is profitable?
A: Yes. Unclear reporting and unsupported add-backs often lead buyers to discount value or renegotiate terms.
