The Related Party Clean-Up
The 12-month protocol for the most common cause of failed SME transactions
Who this is for
Any company where transactions with promoter-owned entities, promoter loans, or personally-held assets used by the business are not fully documented at arm's length. If your diagnostic returned Critical on Vital 6, this is you.
What it costs you to ignore it
The diagnosis behind it
This playbook is triggered by a Red or Critical finding on:
Vital 6 — Financial IntegrityThe Protocol
Complete inventory of every related party and every transaction, three years back
Classify: documented / partly documented / undocumented
Independent benchmarking — is each transaction at arm's length?
Decide for each: regularise, restructure, or unwind
Execute unwinding — the hardest step, and where most programmes stall
Document the survivors — written agreements, market terms, board approval
Regularise personally-owned assets — formal lease or transfer
Build the go-forward RPT policy and approval process
Disclose consistently in financials from the current year
The Sequence
Steps 1–3 run in parallel over the first two months. Step 4 gates everything after it. Step 5 is the long pole and typically determines the whole timeline. Steps 6–8 can overlap. Do not start Step 8 before Step 4, or you will write a policy around arrangements you are about to unwind.
What usually goes wrong
This section is where credibility lives. Generic advice has no failure modes.
The inventory is incomplete on the first pass. It always is. Budget a second sweep after the auditor sees version one.
Step 5 stalls because the money isn't there. Unwinding a promoter advance requires cash the promoter may not have liquid. This has to be planned 12 months out, not discovered in month 6.
Family members disagree about what was always understood. Step 4 surfaces disputes that Step 3's numbers made undeniable. If Vital 7 also returned Red, run Playbook 6.3 first.
The clean-up is done but never disclosed. An unwound transaction that isn't disclosed in the comparative year still shows up in diligence, and looks worse for having been hidden.
How to know it worked
What you can do yourself vs what needs help
Steps 1, 2, 6 and 9 are internal work if you have a competent CFO and CS. Step 3 needs independence to be worth anything. Steps 4, 5 and 7 are where most companies need help, because they involve decisions the promoter cannot make objectively about himself.