We all hate paying taxes. Why would you want to pay more taxes at any time for any reason? Selling a business and borrowing money (which most times the two are tied together) are both cash flow related. Buyers of companies value cash flow. Banks and other lenders value cash flow and the buffer it gives them for loan repayment.
The most believable and credible cash flows are shown via a company’s tax returns. What company would report more taxable income than needed? That is why in the years leading up to your business sale, paying taxes is truly an investment in a higher multiple paid for your business. It will also make it easier for the buyer to sell your deal to their lender.
If all the Owner’s Benefits is hidden in Amex bills, Home Depot receipts, and your home yard service; it will make it more difficult for a buyer to secure financing. A solid business appraisal back by tax returns that tie back to the internal financials will give both the buyer and their lender comfort.
In addition, If you are selling or transferring your business to a family member, cash flow from tax returns is good data to minimize the IRS attacking the transaction as not being arm’s length.
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[…] Tax returns are prepared to minimize taxes. Who wants to pay higher taxes? Except tax returns are an investment when selling a business. […]