For many businesses, the accounting department spends a lot of time in reducing the tax burden. You can use many different methods. These include changing the ownership structure, deferring outgoings, and accelerating incomings. However, when you sell your business, all these can ruin the financial side of the business. Potential buyers will be looking at the cash flow. The procedures used to save the business money can end up lowering the perceived value of the business. So here’s some Taxes & Valuation advice for every business seller.
So what to do?
Well, with adequate preparation, revise some practices to nullify these negative effects. This also usually takes three to five years before a sale. Even with less time of say a year, you can do things to help value your business.
Don’t worry that this would mean giving up all the tax benefits. There are ways in which tax benefits can continue. An experienced Mergers and Acquisitions advisor, with sufficient time, can find ways in which tax benefits continue. It can arrive at a better valuation of the business.
As well as ownership restructuring, review the accounts thoroughly to root out wasteful spending. Correct inaccuracies in inventory statements. And rework revenue deferrals or expense accelerations. Examine off-the-record transactions also. A new look needs to be made on assets. Are these underperforming, depreciated, or accurately valued on the books? A review should be made of the capital expenditure budget. Other aspects that can be considered are the burden of personal, unrelated expenses on the business. And the mixing of other related businesses in the accounts. Also, decisions need to be made about getting your financial statements reviewed or audited.
All these changes to the financial structure take time and diligent work to arrive at the desired outcome. However, the more time and effort you put in, the better off you are at the end of it.
In summary
Selling a Business takes time and preparation in many areas, not least on the side of the financial structure and methods. Preparation should ideally start around three to five years before a sale. This is to show the business at its best. In particular, review some of the practices of reaping the best tax benefits. There are ways to do this. Which keeps the benefits whilst still showing the financial standing of the business in a good light. Hope you got the Taxes & Valuation advice you needed.
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