{"id":561280,"date":"2012-06-27T05:33:27","date_gmt":"2012-06-27T09:33:27","guid":{"rendered":"https:\/\/vrbbd.wpengine.com\/vrbbgreenbay\/unreported-income-show-me-money\/"},"modified":"2022-01-31T12:44:15","modified_gmt":"2022-01-31T17:44:15","slug":"unreported-income-show-me-money","status":"publish","type":"post","link":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/unreported-income-show-me-money\/","title":{"rendered":"Unreported Income: “Show Me the Money!”"},"content":{"rendered":"
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Prospective buyers don\u2019t want to hear about \u201cwhat the business really makes\u201d \u2013 they want to see the books and records that show what is down in black and white. Here\u00a0 is the old story about proper accounting procedures, or lack of:<\/p>\n

A Greek restaurant owner had his own bookkeeping system.\u00a0 He kept his accounts payable in a cigar box on the left-hand side of his cash register, his daily cash returns in the cash drawer of the register, and his receipts for paid bills in a shoe box on the right side of the cash register.\u00a0 When his youngest son graduated as a CPA, he was appalled by his father\u2019s primitive bookkeeping methods.\u00a0 \u201cI don\u2019t know how you can run a business that way,\u201d he said.\u00a0 \u201cHow do you know what your profit is?\u201d<\/p>\n

\u201cWell, son,\u201d the father replied, \u201cwhen I got off the boat from the old country, I had nothing but the clothes on my back.\u00a0 Today, your brother is a doctor.\u00a0 Your sister is a speech therapist, and you\u2019re a CPA.\u00a0 Your mother and I have a nice car, a city house, a country house, and plenty of money for retirement.\u00a0\u00a0 We have a good business and everything is paid for.\u00a0 Add all that together, subtract the \u2018clothes on my back,\u2019 and there is your profit.\u201d<\/p>\n

Great story and it is probably an accurate depiction of many small businesses, even in today\u2019s world. Unfortunately, today\u2019s buyers are not going to buy a business\u2014not for anywhere near what the business may actually be worth in the marketplace\u2014without checking the books and records. Buyers will not pay for what they can\u2019t see. Some sellers want it both ways. Since they haven\u2019t reported this income to anyone, they haven\u2019t paid taxes on it; and now they want to sell it as a real number. They also seem to forget the most important part \u2013 \u201cskimming\u201d is against the law.<\/p>\n

Joseph Bankman, a professor of tax law at Stanford University Law School said, \u201cNothing is as good as taking half your income off the books to start with; that\u2019s better than any phony deduction. That\u2019s the biggest single source of revenue loss in the tax system.\u201d What these sellers may fail to realize is that the Internal Revenue Service (IRS) has audit guides for many different businesses. It tells them, for example, how to roughly calculate annual sales and expenses of a pizza place by tracking its purchase of cheese. Any seller who doesn\u2019t think that the IRS can\u2019t figure out income and expenses of most businesses is kidding herself. Too many small business owners think that they are getting away with it \u2013 but they just haven\u2019t been caught yet. If they kept accurate financial records they probably would get a much higher price for their business, most likely making up for more than what they would have skimmed.<\/p>\n

What happens is this: a business owner gets ready to sell, realizes that due to his or her unreported financial dealings, the business won\u2019t sell for anywhere what he had hoped for. Now he is in the position of having to reveal to a prospective buyer how he is skimming from the sales, paying help under the table to avoid the usual employee costs, or padding expenses. Buyers do not look favorably on sellers who attempt to justify their price by revealing how they are cheating the government(s).<\/p>\n

Here are some tips for business owners who are considering selling:<\/p>\n

\u2022\u00a0\u00a0\u00a0 Plan now to maintain accurate financial records. When it comes time to sell, you will be able to show a prospective buyer where the money is and what it was used for.<\/p>\n

\u2022\u00a0\u00a0\u00a0 Keep in mind that a selling price is usually based on the cash flow of the business. The dollar you hide today will most likely be worth two or three times that when it comes to selling price. Think long-term, not short-term.<\/p>\n

\u2022\u00a0\u00a0\u00a0 Talk to a business broker professional. He or she can provide some education about\u00a0 how businesses are priced. They can also offer suggestions on how to gather the necessary information for a prospective buyer.<\/p>\n

By following the suggestions above and reporting all income, by taking only legal deductions and maintaining accurate financial records, when it comes time to sell and the buyer says \u201cShow me the money\u201d \u2013 you can!<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Prospective buyers don\u2019t want to hear about \u201cwhat the business really makes\u201d \u2013 they want to see the books and records that show what is down in black and white. Here\u00a0 is the old story about proper accounting procedures, or lack of: A Greek restaurant owner had his own bookkeeping system.\u00a0 He kept his accounts […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[],"class_list":["post-561280","post","type-post","status-publish","format-standard","hentry","category-selling-a-business"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/561280","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/comments?post=561280"}],"version-history":[{"count":0,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/561280\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/media?parent=561280"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/categories?post=561280"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/tags?post=561280"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}