Putting all revenue through the books.
Some owners of small businesses are tempted to minimise taxation by not putting all income into the bank, or “through the books”.
Many years ago this was thought to be a clever way to run a business, and enjoy a little “spending money” – and reduce tax. Not now. Today, it is simply more efficient, and straightforward to declare all income, and present a set of clean, transparent accounts to a buyer. If you want to get the best possible price for your business, there is no doubt that this is something that you have to do.
By maximising the income and profit shown on the accounts the sale price increases accordingly. There are two things that business sellers often say to buyers, that buyers will ignore. These are; “There is loads of potential here”, and “There is cash on top of these figures”. These types of comments usually mean nothing to a buyer, and their accountant, their solicitor, and their bank manager.
So we recommend that you do not offer your business to a buyer on this basis. It simply carries no weight with a buyer. A business buyer is relying upon the information provided by the seller to make a decision about buying that business. The creditability of the seller is a large factor in the Buyers decision. Your creditability is enhanced through the provision of comprehensive and accurate financial accounts. Concentrate your attention upon ensuring that your financial records are correct and accurate. We know this sounds boring and obvious, but it looks really bad to a buyer when you present a set of accounts, and then offer all sorts of reasons and explanations for the way the accounts look. When selling a business, your financial accounts are going to be scrutinised by the buyer, their accountant, their solicitor, the bank manager, and all other “so-called” experts, such as the neighbors, father, brother and best mates.
Each time the accounts are scrutinised, these explanations start to “wear a bit thin”, and cause suspicion and doubt to grow in the buyers mind. Don’t let that happen to you. Make sure the accounts are right. The best way to achieve maximum value for your enterprise is to have your business accounts ready for “due diligence” well before you are ready to sell. This will ensure that there will be no problems with a sale when a suitable buyer is found.
Don’t fall for the old-fashioned “Cash is King” approach to business. The benefits are not there anymore.
Benchmark Business Sales and Valuation
