Don't
let your books work against you
It is not news that many small business owners
keep poor books and records, and these record-keeping
habits can be problematic when a business
is for sale. For example, in a cash-based
business, owners pocketing money instead of
recording it on the books may find themselves
forced to sell a business based on what is
recorded, not what is actually made. This
means that your business could be worth much
more than you will be able to get for it.
To avoid this
trap, plan ahead and have at least one full
year of reported records before you try to
sell. The latest 12-month results are the
primary factor when a buyer is evaluating
a business because purchasers are most concerned
with what the business is doing currently.
However, 2 or 3 years reflecting your full
potential are preferable because they will
help reassure a buyer that your business is
worth what you are asking.
If you need to
sell right away there are other ways you can
prove to a buyer that you are doing more business
than your books reveal. A buyer can contract
to buy the business subject to verification
of your takings. From this verified turnover
he can then evaluate your consumption of supplies
and products for the conditional contract
time and estimate from your past purchases,
which you have paid for, if the turnover you
have structured your selling price on is correct.
There are a number of problems with this route
-- it takes more time; a buyer may not want
to dig for this information; and if you are
not honest with the ATO, a buyer may wonder
if you’re being up front about the business
you are selling.
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