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Bonuses: To Adjust or Not to Adjust

Bonuses: To Adjust or Not to Adjust

Sellers and Buyers of businesses tend to have different opinions on adjusted financials that add back discretionary bonuses. They can come to an agreement upon understanding the meaning and timing of bonuses.

The most important question to answer is “Are the  employees really receiving a ‘discretionary’ bonus?” If employees have been given bonuses the last five years running and tend to ‘plan’ on that bonus, is it really discretionary? Would the current or future owner NOT pay it in year six? All parties know, deep down, that would be an epic mistake, regardless of who owns the business.

Provide detailed explanations in writing for adjustments so a Buyer and their deal team can confirm that adjustments for employee bonuses, as well as all others, are “real”.  This builds trust and increases the likelihood of a higher Purchase Price.

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