When we value a business at Stewart & Smith Advisory, we aren’t just looking for a number; we are looking for a story of durability. As we move through 2026, the multiples being paid for mid-sized businesses have stabilised, but the scrutiny has intensified. Buyers and banks are no longer satisfied with a strong 2025 P&L. They want to know if those earnings are high quality – meaning they are repeatable, sustainable, and independent of temporary economic cycles.

This is where the process of normalisation becomes critical.

Why we still look back to 2021–2022 (The Cycle Test)

Clients often ask why we bother looking at five years of data in 2026. The reason isn’t to revisit the pandemic; it’s to perform a Cycle Test.

• The Stimulus Baseline: 2021 and 2022 represented a unique period of artificial liquidity and “forced” consumer spending.
• The 2026 Reality: By comparing those boom years to the normalised demand and higher interest rate environment of 2026, we can see the true floor of your business.
• The Durable Premium: If your business has maintained or grown margins while moving from 2% interest rates to the current 2026 levels, you have proven earnings durability. That proof alone can add 0.5x to 1.0x to your valuation multiple.

The “Add-Back” Minefield

Normalisation isn’t just about the economy; it’s about stripping away the owner-centric noise in your accounts. To find the Future Maintainable Earnings (FME), we apply add-backs – expenses the new owner won’t have to pay.

Common 2026 normalisation adjustments include:

• Market-Rate Salaries: If you are paying yourself $100k but a CEO to replace you costs $250k, we must deduct$150k from your profit.
• One-Off Tech Investments: Did you spend $80k on an AI-integration project in 2025? That’s a one-off capital investment, not an ongoing operational cost. We add it back to show your true profit potential.
• Intercompany Lean: In complex structures, we normalise for below-market rent or intercompany loans that won’t exist after a sale.

Engineering Value: The S&S Approach

A quality of earnings audit shouldn’t happen the month you decide to sell. It should be an ongoing strategic pulse.

Through our quarterly check-in model, we help you clean your earnings in real-time. We identify the valuation killers – like high customer concentration or leaky margins – long before a buyer’s due diligence team finds them.

By the time you are ready to pivot, your financials won’t just be a set of tax returns; they will be a transparent, high-quality roadmap of a business built to last.

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