Every December your accountant makes you the same proposal: “If we bring forward some expenses, you pay less this year.” And it works. You have been doing it for years. Your balance sheet shows a modest profit, your tax bill is reasonable and you sleep soundly.
Until the day someone asks how much your company is worth. And you discover that the buyer does not pay for what you earn, but for what you can prove you earn.
In 30 seconds
- An SME is priced by multiplying its EBITDA (operating profit) by a number of times. With a 5x multiple, every €100,000 of profit is worth €500,000 of price.
- The tax saving is collected once. The loss of value is multiplied by the multiple.
- The solution is not to pay more tax, but to tidy up and document your real profit two or three years ahead.
How a buyer calculates the price
The most common way to price an SME is to multiply its EBITDA by a number of times. EBITDA is, broadly speaking, what the business earns from its activity before interest, taxes, depreciation and amortisation. The number of times, the multiple, depends on the sector, the size and the risk.
For reference: in small US private equity deals, average multiples were around 5.5 times EBITDA below $10 million of value, and between 6.2 and 6.7 times for deals of $10 to $25 million (GF Data, first half of 2025). In Spain the ranges vary widely by sector, but the logic is the same. In this article we use 5 times.
The saving is collected once. The loss is multiplied
Imagine that during the year you spend €100,000 that is not essential to the business: a luxury vehicle, travel, sponsorship, expenses you bring forward to December. We are talking about legal, well-documented expenses; what changes is how a buyer sees them. For tax purposes, your profit falls by €100,000 and you save about €25,000 of corporate income tax (at the general rate of 25%; some SMEs pay somewhat less).
For valuation purposes, your EBITDA also falls by €100,000. With a multiple of 5, your company is worth €500,000 less.
Twenty euros of value for every euro of tax, provided the buyer cannot add that expense back to your real profit. That is what the next section is about.
Every euro of tax you save can cost you twenty in value the day you sell.
What the buyer gives back, and what they don’t
A serious buyer does not take your income statement at face value: they rebuild it. That exercise is called normalising EBITDA. They add what will not recur or does not belong to the business, and deduct costs your company does not bear today but they will have to pay.
- They usually add a one-off cost you can document (a lawsuit, a severance payment, a one-time project) and the part of the owner’s salary above what an equivalent manager would cost.
- They usually deduct rent you pay below market to a company of your own, maintenance you have been cutting for years, or the salary a relative working in the company does not receive.
Every adjustment needs paperwork: invoices, contracts, payslips. What you cannot prove does not count. And what counts but opens a tax risk, the buyer notes in another column.
Your tax past is sold with you
The buyer will review your tax and employment position (again, due diligence). In general, the tax authority can review the last four years. If it finds aggressive positions or hard-to-justify expenses, it will turn that into a discount or a retention of the price as a guarantee.
Put differently: what you saved in tax can come back as a discount on the price.
What to do in good time
- Talk to your tax adviser and to an M&A adviser two or three years before selling, not two months before.
- Separate the personal from the business. The cleaner the expense, the less there is to explain.
- Document every non-recurring expense: what it was, when, and why it will not recur.
- Prepare a normalised income statement and ask someone independent to review it.
- Don’t make last-minute adjustments, such as cutting costs or freezing investment the year before selling. Buyers spot them.
None of this is about paying more tax than you owe. It is about knowing what you are buying with each saving.
If a buyer rebuilt your profit from your own invoices, would the figure come out higher or lower than the one in your accounts?
Hypothetical example with illustrative figures. This text is not tax advice: discuss your case with your adviser.
Sources: GF Data, first-half 2025 multiples in US private-equity-sponsored deals; Spanish Corporate Income Tax Law (Ley 27/2014), article 29 (general rate of 25%); Spanish General Tax Law (Ley 58/2003), article 66 (four-year limitation period).
