Did you know that 80% of businesses listed for sale never sell? Do you know why?
Pepperdine University did a study recently and found that the number one reason a business doesn't sell is value delusion: That's the difference between what the business owner thinks the business is worth and what the market thinks the business is worth. The second biggest reason is poor books: Not accounting for what really happens in the business.
Let’s face it, part of the benefit of being in business is to take advantage or certain tax breaks afforded business owners. However, many owners stretch the rules and don’t account for cash transactions, purchase non-operating assets through the business and run non-operating expenses through the business as well.
For instance, there could be non-working family members on the payroll or the business could be paying for a non-working relative’s car, travel, health insurance, or tuition. The business may even be covering real estate – such as vacation properties – or exotic cars or boats. When it comes time to sell the business, all of these things need to be accounted for or they will not be included in the net income or owner’s benefit when calculating the value of the business to a potential new owner. Think of it this way: If it is not on the tax return, it does not exist. Proper bookkeeping and tax reporting is essential to realizing the full value of your business.
Now, here is the formula you need to remember: For every dollar you account for, you may have to pay thirty cents to the IRS. But ... when it comes time to sell the business, you will get $3.00 back! That’s right, $3.00 for every $.30 cents. I like that formula and you should too.
Guest blogger: Michael Pfeffer
Michael Pfeffer, MBA is the owner at Murphy Business & Financial Services of Southwest Florida, a full-service business brokerage firm with 175 offices throughout North America. Mr. Pfeffer is a Certified Exit Planning Advisor, Board Certified Intermediary, Certified Business Appraiser and Certified Machinery & Equipment Appraiser.
His office is at 27499 Riverview Center Blvd., Bonita Springs, FL. Call 239.793.0431. Email Michael.
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