Who this guide is for
This guide is for the accountant preparing a client's figures for a business valuation. A business owner usually hands this task to you, because it needs the ledger, the lodged returns and an understanding of how the accounts were put together. If you are the owner, pass this page to your accountant and use the business valuation preparation pack for the document list.
For valuations needed for tax purposes, the ATO says a valuation must be objective and supported with appropriate evidence, and that the valuer must be given clear instructions, accurate information and access to records. Your schedules are how that happens in practice. When figures do not tie to each other, or proposed add-backs are described but not shown, the valuer has to stop, ask questions and sometimes make conservative assumptions. That slows the work and can leave out adjustments that were genuine.
Buyers look at the same material. business.gov.au suggests that someone buying a business examine three to five years of financials, including tax returns, BAS and records of amounts receivable and payable. Schedules prepared well for a valuation are usually most of the way to being ready for due diligence.
The worked example: from the ledger to normalised EBITDA
The example below follows one year of a hypothetical company through three schedules. The figures are round numbers chosen for the example.
Three schedules, one year at a time
Ledger to tax return
Explains accounting differences only, so the valuer knows which profit to start from.
Net profit to EBITDA
Adds back interest and depreciation, and takes out any non-operating income.
Normalisation
Evidenced judgements about future earnings, up as well as down.
Schedule 1: management accounts to tax return
| Item | Amount |
|---|---|
| Net profit per management accounts | $412,000 |
| Less: year-end stocktake adjustment | $18,000 |
| Less: depreciation booked at year end (none in the monthly accounts) | $25,000 |
| Net profit per tax return (before tax adjustments) | $369,000 |
Check: $412,000 less $18,000 is $394,000, and $394,000 less $25,000 is $369,000.
This schedule explains accounting differences only. The valuer now knows which profit figure to start from and why the two figures differ.
Schedule 2: net profit to reported EBITDA
| Item | Amount |
|---|---|
| Net profit before tax (from schedule 1) | $369,000 |
| Add: interest expense | $22,000 |
| Add: depreciation and amortisation | $25,000 |
| Reported EBITDA | $416,000 |
Check: $369,000 plus $22,000 plus $25,000 is $416,000.
If the business earned interest on surplus cash or income from an investment, deduct it here and say so. The valuer usually values surplus cash and non-operating assets separately, so leaving that income in would count it twice.
EBITDA is before capital spending, so the valuer will also look at the asset register to judge the spending needed to keep the business running.
Schedule 3: normalisation adjustments
| Proposed adjustment | Evidence provided | Amount |
|---|---|---|
| Owner's private expenses paid by the company | Ledger entries and invoices for personal travel and phone | +$9,000 |
| Owner's salary: $60,000 paid (including super) against a $130,000 market cost, including super, for the roles performed | Duties statement and market pay evidence (recruiter data or job advertisements; award rates as a floor) | -$70,000 |
| Rent paid to the owner's family trust: $50,000 against $65,000 market rent | Lease and a property valuer's rental assessment | -$15,000 |
| One-off legal settlement with a former supplier | Invoice, settlement deed and correspondence | +$28,000 |
| "Owner's discretionary spending, about $40,000" | None | Not included |
| Net adjustments | -$48,000 | |
| Normalised EBITDA | $368,000 |
Check: $9,000 less $70,000 less $15,000 plus $28,000 is a net reduction of $48,000, and $416,000 less $48,000 is $368,000.
Reported EBITDA of $416,000 becomes normalised EBITDA of $368,000
- Reported EBITDA$416,000
- Owner's private expenses+$9,000
- Owner's salary to market cost−$70,000
- Related-party rent to market−$15,000
- One-off legal settlement+$28,000
- "About $40,000" with no evidenceNot included
- Normalised EBITDA$368,000
Scale starts above zero so the changes are visible. Totals are cut short.
Three points come out of this schedule:
- The adjustments reduce earnings overall. An owner who works for less than the market cost of their roles, and a related-party lease below market rent, both flatter the reported profit. A buyer would have to pay the market cost, so the valuer deducts the difference. Schedules that show only add-backs tend to be challenged.
- The private expenses stay out of schedule 1. The $9,000 sits in the accounting profit in both sets of figures (how it was treated for tax is a separate question for you), so it is not a reconciling item. It is a judgement about future earnings, which is why it sits in schedule 3.
- The unevidenced item is left out, not estimated. Leaving the $40,000 out is more persuasive than including it with a note. If evidence turns up later, it can be added with its documents.
The valuer will test each line and may change the amounts. The aim of the schedule is to show your reasoning and evidence, not to settle the answer. You can build the same schedules in the earnings normalisation worksheet, which has a line for each of these adjustments.
What else to prepare, and what good looks like
| Item | Why it matters | What good looks like |
|---|---|---|
| Periods and status | Mixing a full financial year with a part-year can distort trends | Clear labels on every report: period covered, whether audited, reviewed or unreviewed, and the date prepared |
| Related-party schedule | Rent, wages, loans and services with related parties may not be at market | Each related party listed, the nature of the dealing, amounts by year, and the market comparison where known |
| Debtor and creditor ageing | Shows working capital quality and whether old balances are collectable | Aged listings at the valuation date (or nearest month end) that agree to the balance sheet |
| Balance sheet at the valuation date | The bridge from enterprise value to equity value starts from it | A balance sheet at, or as close as possible to, the valuation date, with loan accounts and tax balances identified |
| Asset register | Supports depreciation, capital expenditure needs and asset values | Each asset with cost, date, written-down value, condition, and whether owned or financed |
| Forecast assumptions | A forecast is only as credible as its assumptions | Written assumptions for revenue, margins, wages and capital spending, tied to historical actuals |
Personal items and related parties
The ATO's record-keeping guidance expects businesses to keep clear documents showing the business portion of expenses that are partly business and partly personal, and records that show the purpose of a transaction and the relationship between the parties where relevant. The same records support the lines in schedule 3.
Related-party dealings are common in private businesses: rent to a family trust, wages to a spouse, management fees between group entities, or loans to and from shareholders. List them in one schedule rather than leaving the valuer to find them in the ledger. For rent, see market rent adjustments for owner-owned premises; for owner wages, see normalising a working owner's salary; for one-off items, see what counts as a non-recurring expense. For a broader treatment of add-backs, Oliver Group publishes a guide to EBITDA add-backs and normalisation.
Forecasts
Where a valuation uses forecast earnings, the assumptions matter more than the spreadsheet. ASIC's guidance on expert reports expects material assumptions to be reasonable and disclosed, and forward-looking information to be explained with its inputs and limitations. Outside that regulated setting, the same discipline helps: write down why revenue will grow, what happens to margins and wages, and what capital spending is needed, and show how each assumption compares with the last few years of actual results.
Limitations
Good schedules improve reliability; they do not change the underlying business. Clean records will not make a declining business look stable, and a valuer may still disagree with an adjustment that is well documented. The example shows one year; a valuation usually looks at several, and the appropriate periods, level of detail and need for forecasts depend on the purpose of the valuation and the method used. Figures that do not reconcile and add-backs without evidence are common causes of avoidable delay, but each engagement is different.
Next steps
- Prepare schedules 1 to 3 for each year under review, with a document reference for every line in schedule 3.
- Build the normalisation in the earnings normalisation worksheet and send it with the documents.
- Run aged debtor and creditor reports, a balance sheet and an asset register at or near the valuation date.
- Use the business valuation preparation pack for the full document list, and if a sale is planned, see preparing for buyer due diligence.
Questions
Should I send management accounts or the lodged tax returns?
Both, reconciled. Tax returns are a fixed, lodged reference point; management accounts are often more detailed and more recent. The valuer needs to see how one becomes the other.
Should I propose the market salary for the owner myself?
You can, and it helps if you show your source, such as recruiter data or job advertisements for the roles (award rates are a floor), and what the owner actually does. The valuer will form their own view, so present it as a proposal with evidence rather than a settled figure.
Can my client add back expenses without receipts?
An add-back that cannot be evidenced is likely to be questioned or rejected by the valuer, a buyer or another adviser. Provide the ledger entries and supporting documents, or leave the item out.
Do we need a forecast?
Not always. It depends on the method and purpose. Where a forecast is used, it should come with written assumptions and a link back to actual results.
Sources
- Overview of record-keeping rules for business, Australian Taxation Office. Records should show the purpose of transactions and relationships between parties, and document the business portion of mixed business and personal expenses.
- Buy an existing business, business.gov.au. Buyers are advised to examine three to five years of financials, including tax returns, BAS and receivables and payables records.
- Market valuation of assets, Australian Taxation Office. Valuations must be objective and supported by evidence; the valuer must be given clear instructions, accurate information and access to records.
- RG 111 Content of expert reports, Australian Securities and Investments Commission. RG 111.91 to RG 111.92 and RG 111.117: assumptions should be reasonable and disclosed, and forward-looking information needs its material inputs explained.
Cite or reuse this page
Valuo Insights team (2026). Preparing a client's financials for a valuation: an accountant's guide. Valuo. https://valuo.com.au/insights/preparing-financial-information-for-a-valuation/ (updated 14 November 2026).
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General educational information, not financial, tax or legal advice. Worked examples are hypothetical and do not value a real business. A valuation depends on its purpose, the evidence and the agreed scope.