Share This Info:  

Disclosing Unreported Income When Selling A Business


When selling a business some owners think it is to their benefit to disclose to potential buyers that they are hiding additional income from the taxing authorities. However, experts disagree and say that disclosing this information may actual hurt your chances of selling your business.


Comments Regarding This Video Or Podcast

3/8/2017
Contributor: Timothy Cunha JD: Business Broker, SF Bay Area   Post ID: 1222

Although cash income is less common with the trend toward payment by credit and debit card, cash income can still be a significant factor. Needless to say, all cash income should, by law, be reported, even though often enough it is not.

Sellers should not be disclosing unreported income to buyers. Period. As a business broker, I will not make any representations to any prospective buyer about any unreported cash income.

A business valuation cannot be based on unreported cash income. Generally it is unverifiable. It would need to be discounted by the taxes that would be paid by an honest business owner. It may not be sustainable by a new owner who does report the income because often the customer paying cash doesn't want their possession of cash potentially known to tax authorities. And, in order to take over a business and continue to operate it with unreported cash income, the buyer is effectively saying, "On the day of closing I agree to become a felon."

And, lastly, but very importantly, when a business owner says, "Look I've lied, I've cheated, I've stolen from the government, because I don't report my cash income or pay my fair taxes on that income," why should anyone believe anything else he tells them? He's already established that he's dishonest.

1/24/2017

This is where planning for the sale is so important. If you have income that is not reported but wish to use this income towards bettering your valuation you need to be able to prove it. The practice of not reporting income is not recommended and will likely reduce the Buyers Pool for Marketing your business; at the desired price. However, if well documented and verifiable you may be OK.

Specializing in the laundry business, this is an area we deal with frequently. Although, this is somewhat expected by Buyers looking at laundries. Back to planning, it is advisable to have a 2 year plan to sell your business, if possible. The more time for preparation the better. During this period you should carefully track all income and all appropriate operating expenses. Keep all supporting documents available; especially if you intend on still not reporting. (preferably start reporting it). Sometimes, depending on communication limitations, it is good to have Buyer and Seller sit down and explain the clouded areas between themselves.


  Helpful Resources To Assist In Selling And Buying California Businesses
Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Joe Sandbank, Esq. - Legal Services

I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers

I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
Broker Explains Allocation Of The Purchase Price When Selling A Business

There are a handful of key asset categories in allocating or breaking down the purchase price allocation of a California business sale. Allocation is required to complete the transaction. In this blog post Lee Petsas (Orange County Business Broker) at 714-363-0440 covers asset allocation classes.

Buying A Business: Why Is It Important To Look At Its Tax Filings?

Business tax filings are very important factor in determining the credibility of business financials. Just seeing those financials, you can't determine whether those values are overstated or not. Some business owners provide made up financials to buyers - so, that's where tax fillings come in.

What Is The Typical Business Broker Fee For Sellers And Buyers? Who Pays It?

Was just asked the question from a business owner what the "typical commission" amount is for a broker or agent and if upfront fees are common? Thought this might be a great Discussion topic on BizBen for both business owner/sellers and potentially for business buyers (buyer representation).

Podcast/Vlog: Business Purchase Financing Chat: SBA Loan, Non SBA Financing

Ever wonder what is involved in obtaining business purchase financing to buy a business or franchise? Peter Siegel, MBA who has over 20 years advising and obtaining all types of financing for business buyers in this video/podcast - SBA loans, Non-SBA Financing, Alternative Financing Sources.

How To Determine Whether The Buyer For Your Business For Sale Is Sincere

A problem owners encounter when offering a CA business for sale is that not all so-called business buyers are qualified to make the purchase. It's frustrating and costly to waste time showing non-qualified buyers the business. Here are ways to identify time wasters so the focus is on real buyers.

Why Deals Fall Out: Unrealistic High Asking Prices Are Usually The Reason

The unfortunate truth is that approximately 50% of all small business sales transactions fall out. While failed transactions can happen for a many reasons, Peter Siegel, MBA (BizBen Director & Business Purchase Financing Expert) discusses the main reason deals fall through; steep asking prices.

5 Myths About Selling A California Business: Best Tips For Sellers & Brokers

Peter Siegel, MBA (at 866-270-6278) - BizBen Director discusses myths associated with the process of selling a business and some of them can actually cause deals to fall through. Don't let your sale be comprised, be aware of these common misconceptions related to the process of selling a business.

Due Diligence Checklist: 10 Key Items To Investigate When Buying Businesses

Buying a California small business involves reviewing due diligence checklists so buyers can learn enough to determine whether to proceed with a deal. Here's a due diligence checklist. Peter Siegel, MBA (BizBen ProBuy Advisor & Business Purchase Financing Expert) at 866-270-6278 shares his views.

See All News, Tips And Events

Business Purchase Financing SBA Loans
Escrow Services From Helen Yoo New Century Escrow
Southern California Legal Services For Buyers And Sellers
Redwood Escrow Bulk Sale Services
Facebook
Twitter
Linkedin
Google Plus You Tube
Vlogs and Podcasts
Instant Email Alerts On BizBen
BizBen Blogs And Articles
BizBen ProBuy Program
California Educational Events Buying And Selling Businesses
BizBen ProSell Program

BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2019, All Rights Reserved

               Vlogs and Podcasts  
Join Us On Social Media - Content Updated Daily
Sign Up Today - For Our FREE BizBen Weekly Email Newsletter
Includes The Best Info On Buying, Selling, Valuing, Financing California Businesses:
Articles, Blog Posts, Podcasts, Videos/Vlogs, Discussions, Q&A, Workshops, Webinars,
Resources. Watch For An Email Confirmation After Signing Up Above. Thank you.
Clost Login


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 
Search BizBen.com

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
Due Diligence Checklist: 10 Key Items To Investigate When Buying Busines...
Read More News
What Are Some Tips For Buying A Billiards, Pool Hall Small Business?
Read More News