How do you balance identifiable cash flow with tax minimization?
Business owners and their accountants justifiably search for ways to minimize taxation. There’s nothing wrong with finding ways to pay the least taxes possible, within the limits of the law.
However,
when potential buyers start examining your historical financials, you can’t expect them to recognize cash flow that isn’t recorded as such.
Identifiable cash flow is key in determining sale price.
Dave Driscoll explains the importance of identifiable cash flow in his interview with Ron Ameln of the Smart Biz Show...
[powerpress url=”/docs/audio/04.mp3″ height=”80″ width=”300″]
Transcript of this segment:
Dave: Second of all, it is just you knowing what to do with cash flow. Most importantly though is that owners see all this money coming, they have all these discretionary expenses. They might be a little challenging or aggressive on IRS rules – what they expense and stuff like that, that is all fine. When it comes to the end of the day, what sells a business is cash flow. It is identifiable cash flow. Think of this scenario as you are sitting at a table across from somebody who wants to investigate buying your business and it shows in the books that it makes $150,000 a year, and you lean over to the guy and say “it is really more than that.” Oh really? You cannot sell what you cannot prove.
Ron: Right…
Dave: So if your methods up until that point were that you played a few games, you cannot verify it (the cash flow). So at the end of the day you are not going to get the value for it.
