Recasting
Rebuilding reported financial statements to show what the business earns for a new owner, by removing owner-specific and one-off items.
Also called: Normalising the financials · Financial recasting
Small companies are usually run to minimise tax, not to display earnings. Personal expenses run through the entity, the owner's compensation reflects a tax strategy rather than a market salary, family members appear on payroll, and one-off costs sit undifferentiated in the operating expenses. Recasting undoes all of that to produce a figure a buyer can underwrite: SDE, or adjusted EBITDA where a management team is already in place.
The discipline is in what you can prove. Every adjustment needs a source document and a coherent reason — an invoice, a payroll record, a lease. Recasting supported by evidence usually survives diligence. Recasting supported by explanation usually does not, and the credibility cost extends past the individual item to everything else you have claimed.
The order matters too. Recast before you set an asking price, not after a buyer challenges the number, and be prepared for the buyer's quality-of-earnings work to disagree with some of it.
Where sellers get caught
- Adjusting for a cost the business will genuinely keep incurring.
- Replacing owner salary with zero rather than with a market-rate replacement cost.
- Adjustments with no documentation. An unsupported add-back is worse than no add-back.
Common questions
Is recasting the same as add-backs?
Closely related. Add-backs are the individual adjustments; recasting is the exercise of applying them to rebuild the statements into a buyer-relevant earnings figure.
Will a buyer accept my recast numbers?
Some adjustments, usually. Expect the well-documented ones to survive and the discretionary ones to be argued. That is the normal shape of the negotiation.
Related terms
Add-backs
Expenses added back to reported earnings because they are personal, one-time, or would not exist under a new owner.
SDE
EBITDA plus one owner's compensation and discretionary benefits, used to price businesses a buyer intends to run personally.
Adjusted EBITDA
EBITDA restated to remove one-off, non-market, and non-recurring items so the number reflects how the business will run under a new owner.
Quality of earnings
An independent accounting analysis that tests whether reported earnings are real, recurring, and sustainable.
Guides that use this term
Where recasting comes up in a real sale, and what it changes.
Last reviewed 2026-08-25. General information for business owners, not legal, tax, or financial advice — terms, thresholds, and tax treatment vary by jurisdiction and by deal.