Adding value to your business – 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.
Apart from avoiding prosecution, it is a fact that if you want to get the best possible price for your business, there is no doubt that all revenue must be declared and shown.
By maximising the income and profit shown on the accounts, the sale price increases accordingly. Therefore, adding value to your business.
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. We recommend that business owners do not offer the business to a Buyer on the basis that it is a “cash” business”. 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 credibility of the Seller is a large factor in the Buyer’s decision making process. A Seller’s credibility is enhanced through the provision of comprehensive and accurate financial accounts.
When selling a business, vendors should concentrate upon ensuring that the financial records are correct and accurate. It creates a poor impression to a buyer when a vendor presents a set of accounts, and then offer all sorts of reasons, excuses, and explanations for the way the accounts look.
When selling a business, financial accounts are going to be scrutinised by the Buyer, their accountant, their solicitor, the bank manager, and all other 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. Make sure the accounts are right, as business value is calculated as a multiple of earnings. The higher the earnings you show = the higher your business is valued.
The best way to achieve maximum value for an enterprise is to have the business accounts ready for “due diligence” well before the marketing process begins. This will ensure that there will be no problems or delays with a sale when a suitable buyer is found.
Benchmark Business Sales & Valuations