Why not declaring cash sales is a bad idea!
Firstly, it is illegal!
- As a business owner, it could be tempting to take cash out of a business and not declare it on the financial records; but this constitutes Fraud and ultimately falls under the category of Tax Avoidance. Be warned, severe penalties apply when you are caught!
- Secondly, when the time comes to sell your business, how will you prove to a Buyer the Cash Component you are stating is true when it does not appear on any financial records?
- Businesses are valued on a multiple of earnings basis. Therefore, showing a lower profit on your financials will ultimately put a lower figure on the final value on the business. Even if you can prove to a potential Buyer through methodical record keeping in your secret Black Book of all cash that has been taken out, why would someone pay you a multiple on an amount you have already benefited from in the first instance?
Show me how to steal!
- As a business owner, you could potentially establish a culture within the organisation showing staff how to take cash out without anyone knowing about it as well.
- Will a Buyer then believe anything else you are telling them about your business if they cannot trust you in the first place?
Do the right thing & benefit in the long term
- Declare all cash takings in a business so that you can reap the rewards when you sell with a higher multiple on the final sale price and keep the taxman happy!
Disclaimer: All articles provided herewith are for informational purposes and not to be construed as financial or legal advice. Consult you accounting & legal team for advice in selling or buying a business