Two things make a small business valuable:
- The amount of sustainable and growing profit it generates
- The ability for a potential buyer to see #1
Too many small business owners manage their business to “avoid” taxes when in fact what they are doing is avoiding “profits”. If General Electric kept it’s books like a many, many small businesses every manager in GE would likely be facing jail time!
Value in the eyes of the buyer?
- Can the real profit of the business be clearily and easily identified?
- Is there reason to believe the businesses profits can be repeated or improved upon in the future?
Simple questions but difficult for many business buyers to answer……because too many business owners “hide” profits in an effort to avoid taxes.
It’s amazing to me, a business owner will pay his kids college out of the business and treat it as an expense (likely illegal but therefore avoid taxes on that amount) but then the biz owner doesn’t fund his/her TAX DEDUCTBLE retirement plan which is totally legal!! Dumb.
Guess what, if you want to sell your business one day you will need at least 3 years of clean books to get the highest price for the business….that’s three years!! And that doesn’t mean go back 3 years and try to un-scramble your books, it means 3 years of clean books.
WARNING – most small business owners don’t know when their business is going to NEED to be sold. Heart attacks don’t give 3 year notices, in all likelihood neither do divorces, partnership break ups or all the other things that move a business owner to sell their businesses.
Want to have a better business that will pay you more now (yes, even after taxes) and get you the highest price when you sell?
Get a good accountant (no I am not an accountant), keep your books properly, take advantage of all the LEGAL tax breaks avaialble.
Make more money while you own the business, make more money when you sell the business and be a good corporate citizen along the way. What’s not to like?