Glossary
Related-party transactions
Dealings between the business and its owners' other entities, rent, loans, management fees, priced however the family wanted, not at market.
In plain English
A related-party transaction is any dealing between the business and someone connected to it: rent paid to the owner's family trust, management fees to a holding company, loans moving between entities in the group, wages to family members. None of these are improper by default. All of them can be priced at whatever the family chose.
That freedom is the analytical problem. Below-market rent flatters earnings; above-market rent buries them. Until every related-party arrangement is identified and repriced to market, the earnings figure is an artefact of the family's structuring, not a picture of the business.
Why a lender cares
Credit teams hunt related-party lines because they know earnings can be manufactured through them. A file that discloses each arrangement and reprices it to market, with the group structure drawn as a family tree, removes the suspicion before it forms. Multi-entity groups are exactly why our workbooks include the family tree with intra-group flows eliminated.
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