How much do you know about Small Business Finance and Accounting?
Accounting
is considered the necessary evil for most business owners. Understanding and accurately tracking the inner-workings of your business is a must for any business operator.
Any business broker can tell you that probably one of the biggest reasons a business will not sell is because their accounting is a mess.
Good accounting and keeping clean books will help prove to a buyer that you are telling the truth about your business's financial claims.
If a seller claims to gross $500,000 in sales and has no real internal bookkeeping and his tax returns only show $300,000 - the buyer will not have confidence.
If the buyer is savvy and already has the background in your particular industry you'll get an offer - but a substantially lower one. Low-Ball!
The fact of the matter is that the majority of buyers are first-time business owners.
They are people leaving Corporate America due to layoffs, retiring, or just plain looking for something new. First-time buyers will have more hesitation paying fair-market value for a business that cannot back up its claims, because they need to make sure that they will acquire a business that can replace their income and support their lifestyle.
A business that can show most or all of their gross sales on their tax returns will stand a better chance of selling at a fair price.
The same goes true for clean, organized, and professional books.
One way of looking at it is: businesses that do not report a healthy portion of their sales are "stripping value" as they are operated. On the other hand, when reporting more income on the tax returns, the business will receive more value later when it sells.
If your serious about selling your business some day, a couple of suggestions are to brush up on your small business finance and incorporate better accounting methods or consider hiring a bookkeeper or an accountant put your finances on a system.
The other suggestion is simply to report more income. If you're worried about higher taxes, talk with a competent small business accountant about taking advantage of all the available write-offs and tax laws.
This way, when the time comes to sell, you command a higer asking price and reduce your likelihood of qualified buyers losing confidence in you and your business.
