3 Ways to Kill the Value of your Business

Many business owners are so focused on running their business and putting out daily fires, they often don’t consider the long term ramifications of a few small decisions. What might seem like a quick fix today, could end up destroying the value of your business!

As we review small businesses (under $10M sales) to sell, here are 3 of the most common ways that business owners have devalued their business.

1. Not reporting cash.
We had a bar owner that would take the cash out of the register every night. It was his “pocket” money. He didn’t see anything wrong with this. It was “his” money. Sadly, when that is not the way the IRS or buyers look it at. When all the revenues are not reported to the IRS, a buyer become suspicious of how the seller is doing their books and starts to question what else is not being reported. A buyer will often say to us, “If they are willing to lie to the IRS, I am sure they will lie to me.” Since many businesses are valued based on a multiple of profits (or sometime revenue), when both values are artificially low from cash being removed. This reduces the value of the business and can make the business unsellable at any price turning it into a liquidation of assets, sold for pennies on the dollar.
TIP: Report ALL income in the business on your P&L and tax returns. It is better to pay the 30 cents in taxes, than loose the $2.50 that the buyer would have given you!  Continue reading here.

By Kimberly A. Deas, Murphy Business & Financial Services, Exit Stage Left Trusted Advisor

 

« »
SBDC Footer Shadow Background