The Art of Recasting: How to Reveal Your Business’s True Earnings Before You Sell

Introduction

When business owners look at their tax return, it’s easy to assume the bottom-line number—Net Income—reflects the true value and performance of their company. In reality, it rarely does.

If you have a good accountant, your taxable income is designed to be minimized.

But when planning a sale, transition, partnership, or financing event, buyers care about something far more important:

How much cash flow will the business generate for them?

This is why recasting your financials is one of the most powerful steps in preparing your business for valuation or strategic decision-making. It uncovers the economic reality behind the numbers and reveals your true earning power—often dramatically higher than what your tax returns suggest.

Recasting, or “normalizing” your financials, adjusts your statements to show:

• the actual discretionary income the owner receives

• cash flow available to a buyer

• non-operational, non-recurring, or owner-specific expenses

• the true economic benefit the business generates

In short, it replaces your tax strategy with your operational reality.

For owners preparing for an exit—or even considering one in the next 3 to 5 years—this process can mean the difference between an undervalued business and a life-changing sale.

Add-backs are legitimate adjustments used to calculate Seller’s Discretionary Earnings (SDE) or Adjusted EBITDA—the performance metrics most buyers and advisors rely on.

Here are the most common types:

Your salary, bonuses, payroll taxes, and distributions. A new owner will structure compensation differently.

These often include:

• vehicle expenses

• travel

• meals and entertainment

• family payroll

• memberships

These reduce taxable income but do not reflect operational reality.

Examples include:

• legal disputes

• consulting projects

• renovations

• major repairs

These won’t continue under new ownership.

Depreciation and amortization artificially reduce reported profit but don’t affect cash flow.

Debt rarely transfers to a new owner, so these expenses are added back.

Let’s consider a simple scenario.

Your tax return shows:

• Net Profit: $400,000

After identifying valid add-backs:

• Add-backs: $725,000

Your adjusted earnings become:

• True SDE: $1,125,000

Now apply a conservative 4× industry multiple:

Without Recasting:

$400,000 × 4 = $1.6M

With Recasting:

$1,125,000 × 4 = $4.5M

That’s a $2.9 million increase in perceived valuation—created by understanding your true earnings.

Before you explore deeper diagnostics, the best first step is to measure where your business stands today.

⭐ Take the Free Value Builder Score

A fast, confidential assessment that evaluates your business across the 8 drivers of performance and gives you a 0–100 score instantly.

No financial statements required.

No obligation.

Immediate insight.

👉 Take the Value Builder Score (Free Assessment)

Once you receive your score, you’ll have the option to request an Owner Insight Report—a deeper analysis of your financial, operational, and strategic signals.

Your tax return tells you what you owe the IRS.

Recasting reveals what your business is actually worth.

Understanding your true earnings gives you:

• clarity

• confidence

• decision-making power

• a strategic roadmap

• insight that buyers, lenders, and partners look for

If you want to uncover the real performance of your business and maximize future opportunities, start with your Value Builder Score and build from there.

👉 Begin the process — take your Value Builder Score today.