The Numbers Behind the Numbers
The headline number in most sales conversations is the multiple. Three times profit. Four times profit. It sounds precise. It's only as reliable as the profit figure it's being multiplied by.
The problem is, not all profit is the profit you think it is.
Sellers, entirely reasonably, want to present the business in its best light. That often means "adjusted" profit, with addbacks for things that supposedly won't apply once you own it. Some addbacks are legitimate. Some are doing a lot of behind the scenes work to make an ordinary year look like a strong one.
Where this tends to hide.
Personal expenses run through the business.
A family member on the payroll who won't be staying.
One-off income, a large one-off referral fee or a lump insurance commission, presented as if it repeats every year.
Deferred costs, maintenance or staffing that's been put off to flatter this year's figures, and that you'll be paying for in your first year of ownership instead.
Why it matters more than people expect.
If you're paying a multiple of profit, every pound of inflated or non-recurring profit gets multiplied too. A £20,000 addback that shouldn't have been there doesn't cost you £20,000. On a four-times multiple, it costs you £80,000, for something that was never really there.
What to actually do about it.
Ask for the addback schedule, not just the adjusted figure. Ask what each addback is, why it won't recur, and get evidence rather than an explanation. Look at three years of trend, not one strong year in isolation. And treat any income concentrated in a single large event or client with real scepticism about whether it's genuinely recurring.
None of this is about assuming bad faith. Most sellers aren't trying to mislead anyone. But the numbers you're paying a multiple on should be the numbers that are actually going to repeat, not the version that looks best on a single page.
That's what we do at Russou.
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