Three family members, one business, and a profit number nobody trusted

The situation

The idea started at a family dinner, the way a lot of these things do. Eun-ji had spent two decades building a portfolio of small commercial properties around eastern Ontario and was tired of being a landlord to other people's businesses. Her son Feng, who had built his career advising other people's investments, wanted something he could run with his hands rather than watch from a spreadsheet. His wife Xia, who had a background in operations, was the one who actually pushed the idea from dinner conversation to a real search: buy a business, together, as a family, and run it as owners rather than investors.

They found it in a Carleton Place manufacturer of custom metal components, a business built over twenty-five years by a retiring owner who wanted a clean exit and had no family interested in taking it over. The price under discussion was in the range of six million dollars, and the three of them structured it so Eun-ji provided the largest share of the equity, Feng arranged financing through his professional contacts, and Xia would step in as the operating manager once the deal closed.

The arrangement worked, on paper, because each of them was bringing something different: capital, financing relationships, and operational experience. What made it harder in practice was that all three needed to agree, separately and together, on whether the price reflected what the business actually earned. Eun-ji was used to evaluating income properties, where the numbers are relatively clean. Feng was used to evaluating public companies with audited statements. Neither of those backgrounds prepared either of them for the way a small manufacturer's financials actually look, full of the owner's personal judgment calls about what counted as a normal cost of doing business.

The seller's accountant had prepared an addback schedule showing the business's true earning power once certain unusual, one-time costs were removed from the reported profit. Two of those addbacks, a substantial building renovation and a set of legal fees from an old dispute, were large enough that if they were legitimate, the business was worth close to the asking price, and if they were not, it was worth considerably less.

None of the three had ever bought a business before, and each of them approached the number from a different professional habit that, in this deal, pulled in different directions. Eun-ji wanted the addback schedule tested the way she would test a tenant's stated income before approving a lease. Feng wanted it treated the way an analyst would treat a company's adjusted earnings, with skepticism toward anything the seller had chosen to strip out. Xia, who would be the one running the shop floor once the papers were signed, mostly wanted to know whether the equipment behind the renovation number actually worked, which was a question neither of the other two had thought to ask first.

Why this was harder than it looked

Normalizing a seller's financial statements before a sale is a routine part of small business valuation, and it exists for a good reason. A business's reported profit in any given year can be distorted by expenses that will not recur, a major repair, a lawsuit, a one-time consulting project, and a buyer who prices the business on that distorted number either overpays or gets scared off a business that is actually healthier than it looks. Addbacks correct for that by adding those one-time costs back to profit, showing what the business would have earned in an ordinary year.

The trouble is that 'one-time' is a judgment call, and the incentive runs one direction. A seller benefits from calling as many costs as possible one-time and unusual, because every dollar added back increases the profit figure buyers use to price the business. The renovation the seller's accountant had added back, just over four hundred thousand dollars, had indeed been a discrete project: a new roof and updated electrical for the production floor, done two years before the sale process began. But updating aging infrastructure is also, arguably, an ordinary cost of running a twenty-five-year-old manufacturing building, not a one-time anomaly. Reasonable accountants could and did disagree.

The legal fees, roughly one hundred fifty thousand dollars from a supplier dispute the business had resolved three years earlier, presented a closer call in the other direction, genuinely unusual, unlikely to recur, and a fair addback by most standards. But the two addbacks had been presented together in the seller's schedule, and untangling which was defensible from which was debatable took real accounting work, not just a read of the numbers.

What made it urgent rather than merely complicated was timing. Feng's financing was tied to a rate commitment from a commercial lender that expired at the end of the month, over a stretch that included a statutory holiday weekend, leaving effectively three business days to resolve the dispute, get the family aligned, and close, or lose the financing terms and start over.

The family dynamic added its own pressure. Eun-ji was the one whose capital was most exposed if the price turned out to be wrong, Feng was the one whose professional relationship with the lender was on the line if the financing lapsed and had to be rearranged from scratch, and Xia was the one who would actually have to run the business day to day once the deal closed, regardless of what the final price turned out to be. A disagreement over an accounting technicality was, underneath it, a disagreement about whose risk mattered most in a family that had never had to negotiate money with each other quite this formally before.

What we did

1. Brought in an accountant to independently test both addbacks. Rather than accept or reject the seller's schedule on our own judgment, we had a qualified accountant review the underlying invoices and the business's maintenance history to assess whether the renovation was genuinely discretionary or represented deferred, ordinary upkeep the building would need again in a normal cycle. That independent review gave the family a number they could defend to their lender, not just to each other.
2. Separated the two addbacks into distinct negotiating points. Treating the legal fees and the renovation as one bundled number, as the seller's schedule had, made compromise harder, since conceding on the whole schedule felt to the seller like losing the argument entirely rather than adjusting one line within it. We proposed evaluating each independently, which let both sides concede ground on the weaker point without needing to fight over the stronger one.
3. Confirmed the legal fee addback was reasonably supported. The accountant's review found the supplier dispute was a genuine one-time event tied to a contract the business no longer used, unlikely to recur under normal operations, and distinct in kind from the ongoing infrastructure question raised by the renovation. We advised the family that fighting this addback was unlikely to be worth the time pressure they were under, and that conceding it cleanly would strengthen their position on the point that actually mattered.
4. Challenged the full renovation addback and proposed a partial figure. Based on the building's maintenance records showing similar, smaller capital projects roughly once every five to seven years, we argued a portion of the renovation cost reflected ordinary capital upkeep that should not be added back in full, and proposed treating a portion of it as a normal cost instead.
5. Held a joint call with the seller's counsel and accountant to negotiate the adjustment directly. Rather than exchanging written positions that would eat into the remaining time, we scheduled a same-day call to work through the numbers together, which let both sides see the reasoning behind each figure and move faster than correspondence would have allowed. It also let the seller's accountant explain, in real time, why the renovation had been timed when it was, which made the eventual compromise easier to accept as reasonable.
6. Reached a compromise adjusting the purchase price modestly downward. The seller agreed to treat roughly half the renovation cost as an ordinary expense rather than a full addback, which reduced the agreed purchase price by an amount in the low hundreds of thousands, still within the range the family had budgeted for, and close enough to Eun-ji's original estimate that she did not need to revisit her own financing commitment.
7. Finalized closing documents ahead of the holiday weekend. With the price resolved, we worked to have the purchase agreement, financing conditions, and closing documents ready two full days before the lender's rate commitment expired, rather than aiming for the deadline itself, because the holiday weekend meant no lawyer, lender, or registry office would be reachable to fix a last-minute problem. That margin meant a minor question from the lender's own counsel could be cleared without threatening the closing date.

The outcome

The deal closed on schedule, inside the lender's rate commitment window, at a price adjusted down from the original asking figure to account for the partially disallowed renovation addback. Neither side got the number they started with. The seller gave up a portion of the value attributed to the renovation addback, and the family paid slightly more than they would have if the seller had simply conceded the full point, since the compromise landed roughly in the middle of the two positions.

What the family avoided was the real cost of the alternative: losing the financing commitment over the holiday weekend and restarting the process with a new lender, new rates, and a deal that might not have survived a second round of negotiation with a seller who had other interested buyers waiting. The compromise, imperfect as it was, protected the timeline that actually mattered to closing at all.

Eun-ji, Feng, and Xia took ownership of the business roughly on the schedule they had planned around a family dinner months earlier, with a purchase price they could each explain and stand behind, rather than one built on a number none of them fully trusted. That shared confidence in the figure, more than the specific dollar amount, is what let three people with three different financial backgrounds agree to buy something together and mean it.

The process also left the family with something they had not specifically asked for: a working method for making financial decisions together under pressure. Eun-ji, Feng, and Xia had never before had to reconcile a landlord's read of value, an investment advisor's read of risk, and an operator's read of what the business would actually need to run, inside a single number, on a deadline. Getting through the renovation dispute together, and agreeing to split the difference rather than let any one of their instincts win outright, became something of a template for how the three of them have made decisions about the business since.

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