I had a business owner say to me just
the other day thanks for the appraisal of my business
but it’s worth far more than you’ve appraised because of all the cash I take.
All the undeclared earnings. All the money that I don’t put through the books.
Is that true? Is a business worth more because of the undeclared earnings? Is it worth more because of the cash that the business owner takes out of the
business. Think about this when it comes to selling. If you’re lying to the taxman
and stealing money from the business why will a buyer believe that you’re not
trying to lie and steal from them at the same time? Undeclared earnings doesn’t
add value to the price of the business. You can only steal the earnings once, but
why would you do it anyway? At sale time, take this simple example. If
your business is valued by a multiple of profit and most businesses are now that
multiple let’s say it’s a conservative 2, but remember we’re getting up to 5
times multiple, then the only person losing money is you. By stealing a dollar
of earnings you save twenty-eight cents of tax. Now left in the company that
one dollar of earnings if it’s a 2 multiple turns into 2 dollars on the
sale price and that’s tax-free. Remember no capital gains tax.
It’s costing you 2 dollars to save 28 cents. Why would you do it? Hey thanks for watching, really appreciate it if you want to see more
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