Ask what the business still needs
An owner may describe a cost as personal or unusual. First ask whether the business would still need the underlying work, service, or asset after a sale. If an owner performs day-to-day duties, removing their compensation without considering replacement labor can overstate ongoing earnings. If a supposedly one-time expense arises irregularly as part of normal operations, investigate the pattern before calling it nonrecurring.
For public-company non-GAAP measures, SEC staff warns that excluding normal, recurring cash operating expenses can mislead, including expenses that recur at irregular intervals. See SEC staff guidance, question 100.01. This is a prompt for careful private-business review, not an SEC test that automatically decides a buyer's position.
Build an evidence packet
For each line, keep the general-ledger entry, invoice or payroll record, date, and a short explanation of why the cost would change. If an adjustment relies on a future change, identify the assumptions and any offsetting cost. Compare the treatment with prior periods. The SEC flags inconsistent period-to-period treatment and labels that do not clearly describe a non-GAAP measure. See questions 100.02 and 100.05.
Look for downward adjustments too
A clear review includes gains and benefits that may not recur, as well as missing or understated operating costs. Write negative proposed adjustments when appropriate. If you cannot support a line, leave it visible and mark it unresolved; do not quietly treat it as approved. A buyer, lender, or advisor may reject, revise, or supplement any proposal.
Educational discussion only. The cited SEC guidance governs public-company non-GAAP disclosure; it is used here as a transparency reference, not as private-deal regulation. This page provides no legal, tax, investment, or valuation advice.