As you prepare to sell your business, it takes a change of mindset from managing your business so you pay as little taxes as possible to getting the highest price possible for the business. These are related, but different, matters.
Consider one of the main drivers that establishes the value of a business: the combination of what is commonly referred to as Earnings Before Interest, Taxes, Depreciation, Amortization (EBITDA) and Seller Discretionary Cash Flow (SDCF), also known as the owner benefit.
If non-core expenses are buried in the day-to-day operations of your business, a buyer – and, more importantly, the bank that will provide the loan to purchase the business – will not allow these expenses to be added back to net operating profit to establish SDCF. This includes the automobile and related expenses for the owner, travel and entertainment, or personal items purchased at places like Costco that can be buried in the cost of sales or office supplies.
Every additional dollar you can show as a bank-acceptable add-back expense will establish SDCF and will be worth two- to three-and-one-half times (or more) that factor as a multiple to establish the price of the business. Compare that to what your “effective” federal tax rate is for the types of expenses mentioned, and you will see a dramatic differential.
When you do the math using these two different approaches, in almost all cases, you find the opportunity to make more money when you sell your business by doing everything you can to increase earnings (EBITDA) as much as possible.
There are also opportunities to pay less in federal taxes on the proceeds from the sale of your business, based on how the transaction is structured, with the assistance of third-party professionals that an experienced intermediary can connect you with.
If you would like a confidential, no-obligation analysis and discussion of what you can be doing now to prepare for when you are ready to sell your business, please call (888-893-6661) or e-mail (bobd@dolansales.com) me. I serve customers nationwide. To learn more about my background and see customer recommendations, visit my LinkedIn profile at http://www.linkedin.com/in/dolansales.
(c) 2014 Dolan Sales, Inc.
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