Planning to sell your business but worried about how to prove all your undeclared income and get the best sales price for your business? One of the greatest challenges faced by entrepreneurs that have skimmed cash from their businesses, is to establish this income as ‘earned but unreported’. Without the ability to prove the existence of this income, the buyer will exclude it from the business value and decrease his/her purchase offer accordingly. Here are some quick ideas to help you substantiate your undeclared income:
- POS Register Tapes - if you use a POS system that tracks sales, you can typically print daily, weekly and monthly totals that can be used to show sales totals.
- Purchase Orders - if you have only one location, sometimes purchase orders can be used as an indicator of sales volume. It seems logical that if you are purchasing inventory on a regular basis, you are selling those items and replacing them in the store.
- Many business owners tell prospective buyers to just come to the business and watch for a couple of weeks or even a month. That way the buyer can see what kind of sales volume is going on and can count the cash at the end of the day.
- Depending on the type of business, there may be other factors which will help tell the story of income (i.e. water bills, linen service, etc.)
Regardless of which method you use, keep in mind that you are essentially asking a buyer to "trust you". When you have undeclared income, a buyer is not going to trust you. Some will ask you to substantiate it and if you provide enough documentation that makes sense, they may consider a portion of it. You need to remember that even if you were able to substantiate an extra $10,000 in cash every month, the buyer has no way of knowing where that money is going. Often times cash is used to pay vendors and employees.
To get the highest price for your business, declare all your income. It really is just that simple. And if you haven't declared all your income, just know that you can still get a good price for your business; it just won't be as high because by skimming cash, you have diminished your business' value.