We all know that cash heavy operations like restaurants and retail stores often have unreported income. This can hurt you when selling your business.
If you’re considering selling your business in 2011, it may be a good strategic move to claim all your income on your 2010 taxes. Although this will increase your tax liability costing you $.25-$.35 on the dollar in taxes, it will return to you $2 to $4 on the dollar in the price you receive for the business.
Seeing that we’re pulling out of a recession a sudden spike in revenues, even 50% to 100%, could be chalked up to the “recovery” not would not be that uncommon. Business are primarily sold on tax returns and off the books cash income is hard to prove and even harder to trust. When we market a business we can only state cash flows that can be proven with documentation therefore a business with 25% of their cash flow deriving from off the books cash will look less attractive and is more likely to be passed over.
Be sure to talk this over with your accountant and tax advisor.