Maintainable earnings: the number every valuation starts from

Every earnings-based valuation begins with a deceptively simple question: what does this business actually earn? The answer almost never matches the bottom line of the most recent tax return, and the gap between the two is where most of the argument lives.

Reported profit answers a different question

A set of accounts is prepared for a purpose: reporting, compliance and tax. It is shaped by tax planning, by the owner's personal preferences, by one-off events and by timing choices. A valuation has to strip all of that back to the earnings a new owner could reasonably expect to keep.

The adjustments that matter

• Owner benefits: salaries, superannuation, vehicles, travel, rent and discretionary expenses that reflect the owner's choices rather than the cost of running the business.
• Related-party arrangements: below-market rent, services from a connected entity, or family members on the payroll without a genuine role.
• One-off items: a settlement, a grant, a support payment, or a single unusually large contract.
• Accounting policy: revenue recognition, provisioning and depreciation choices that move profit between years.
• Trend: whether the last twelve months represent the business, or a peak.

Why the adjustment schedule is the valuation

Each adjustment should be evidenced, explained and reversible. A reader should be able to see the reported figure, follow every step to the maintainable figure, and disagree with a specific step rather than with the conclusion as a whole. That is what makes the number auditable — and what turns a later conversation into a discussion about evidence rather than a contest of opinions.

Where owners get caught out

Two mistakes recur. The first is treating last year's profit as the earnings base, when last year happened to be the best one. The second is adjusting without documentation, so that a reasonable figure cannot be defended because nobody can show how it was derived.

If your business has an unusual year behind it, a related-party structure, or a heavy owner-benefit load, this is the part of the valuation that will decide the outcome.

An indicative range is the quickest way to see roughly where the adjusted numbers land: start with the free indicative range.