I was looking through a profile for a newsagency for sale in Victoria recently and was surprised at the number of add-backs to get to an Adjusted net profit. In this instance, I’d consider this figure to be a work of fiction as there is no accompanying explanation or detail provided.
The best assessment of business performance is the Profit and Loss statement. While it could be that the company has other interests or activities, it would be straightforward for an accountant to provide a P&L for the newsagency entity within the overall business.
It is only when you get back to original accounting and business performance data that you can assess the financial health of a business. This is crucial to determining the appropriateness of the vendor asking price.
A good business run well and profitable will attract a good price.
I am suspicious of newsagency business profiles with many add backs, especially when these are presented would accompanying explanations or a supporting P&L to provide context.
If you are planning on selling your newsagency soon, do everything possible to drive profit today as this is what will benefit you when you do decide to sell. Smart purchasers will pay a premium for profit and not for a figure boosted by add-backs.