In Show 070 – Taking Cash as Fees originally broadcast on Facebook Live on Monday 12 March 2018 we explore this interesting topic.
Today on the show we focus on one of the biggest pitfalls we see when business owners prepare to sell. Taking cash for fees might seem innocuous but it can have huge implications. It can effect the value of your business in the long term. You might be tempted to pocket any cash that flows into your business. Whether your a lawyer with a client that pays in cash or you operate a coffee shop there are plenty of opportunities to keep money off your books. Avoiding the tax man might seem like a good idea at the time but it really does matter for the long term prospects of your business.
At some point you are going to exit you business. Either by choice or or by circumstance there is an end date built into every business. By keeping a lot of cash off your books you are going to seriously impact it’s value.
Imagine a coffee shop where customers pay $4 for a cuppa. This shop sells 500 coffees in a week. That’s a yearly income of $104 thousand. By not declaring that money the owner will end up saving 30 cents on the dollar in taxes or $31 thousand per year. But when he goes to sell the business he can’t include that money in the businesses income. If the owner could sell the business for a multiple of three times year income then they are going to receive $300 thousand less for a sale.
Declare that cash!
More about this Show
We started Business Legal Lifecycle to create a simple way for you to understand complex legal terms. Most importantly we want to help you to develop a plan to take your business successfully into the future. There’s a startling statistic the underscores the importance of developing a solid plan. The majority of business owners are just seven months away from losing everything. A single aspect of your business that is not set-up correctly can shut down your whole operation very quickly. Legal advice is not cheap and even when you can afford it there is often a divide between lawyers and their clients. We want to close that gap once and for all. We want to put legal knowledge and tools into your hand to prevent the worst from happening to you.
Twice a week we are going to deliver those tools right to your home or office with Business Legal Lifecycle TV. We’ll start the week with Fast Fix Monday, a short 5-10 minute video that will tackle a single issue that businesses have to deal with. Then on Wednesday’s our main show will feature with more fulsome discussions and interviews all delivered in a straightforward and easy to understand format.