Tuesday, 26 March 2013

Too many personal expenses will impact credibility

Burying your personal expenses so deep in your corporate statements will make it difficult to find for everyone…. including the bank and business buyers.

You’re not alone, minimizing tax liability is a strategy all business owners think about.

When it comes time to obtain financing or sell the business, buried personal expenses and assets can create a problem in determining the true cash flow.

Consider a recent seller who watched as countless qualified buyers walked away from their interest into his business when they discovered personal Brazilian courier expenses in his local retail hardware store.

Imagine how suspicious buyers became when they discovered a large local printer described her many Meals and Entertainment Expenses as personal in nature despite playing a large front-line role in the sales of the corporation.

Buyers and bankers won’t always give credit to many of these items. As a result, the cash flow can be suspect, and when you apply a multiplier to determine the value of the business, the results can be disappointing.

Plus, the underlying credibility of the seller may be jeopardized which can derail an agreement with a buyer before the train ever leaves the station.

 It is in the best interest of the business owner to show a healthy bottom line and minimize the burying of personal expenses in the years preceding the sale of their business. They will find they’ll improve the likelihood of selling at the highest price and improve the probability of a successful transfer.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.


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