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Top 5 Mistakes to Avoid with Your Tax Return When Selling Your Business – Insights from Murphy Business Sales Tampa

Top 5 Mistakes to Avoid with Your Tax Return When Selling Your Business – Insights from Murphy Business Sales Tampa

by | Aug 15, 2023 | Business, For Sellers, Selling a business

Are you considering selling your business? It’s a significant step that requires careful planning and attention to detail. One critical aspect that business owners often overlook is their tax return. Properly managing your tax return and financial statements can greatly impact the value of your business when it comes time to sell. In this blog post, we’ll dive into the top five things you should avoid doing with your tax return when trying to sell your business, with insights from the experts at Murphy Business Sales Tampa.

1. Properly Reporting Expenses on Tax Returns and P&Ls

Accurate financial reporting is the foundation of a successful business sale. When preparing your tax return and profit and loss statements (P&Ls), make sure to accurately categorize and report your expenses. Misclassifying expenses or failing to report them can lead to discrepancies that might raise red flags for potential buyers. Work with your accountant to ensure that all expenses are correctly recorded, giving potential buyers confidence in the accuracy of your financial statements.

2. Avoid Reporting Personal Expenses as Business Operating Expenses

One common mistake some business owners make is reporting personal expenses as business operating expenses. While this might seem like a way to reduce your tax liability, it can have severe consequences when selling your business. For instance, if you write off personal expenses to save on taxes, the potential sale value of your business could decrease substantially. The example is simple: imagine you save $1,500 on taxes by writing off $10,000 in personal expenses, but this action could potentially cost you $20,000 to $30,000 in the final sale price. It’s crucial to keep personal and business expenses separate to ensure an accurate valuation and maximize your business’s worth.

3. Differentiating Between Capitalized and Expensed Items

Understanding the difference between capitalized and expensed items is vital when preparing your tax return and financial statements. Items that can be capitalized are recorded as assets on your balance sheet and can affect the depreciation of your business. When selling your business, this depreciation is added back to the expenses, which can impact the valuation positively. Collaborate with your financial advisor to determine which items should be capitalized and which should be expensed, optimizing your business’s financial presentation for potential buyers.

4. Factoring in Interest Expenses During Valuation

Interest expenses, if present, can be added back when valuing your business. These expenses are often necessary costs for running a business, but they might not accurately reflect the business’s operational performance. By adding back interest expenses, potential buyers can better assess the true earnings potential of the business. Highlighting this adjustment in your financial statements can enhance the appeal of your business and provide a more accurate representation of its value.

5. Rent Charges and Property Ownership

If you own the property through a separate entity and charge rent to your business, it’s essential to align the rent charges with the market value. Charging significantly more or less than the market rate can impact the perceived value of your business. Overcharging on rent could make your business seem less profitable, while undercharging might raise questions about your business’s potential earnings. Striking the right balance and accurately reflecting property-related expenses and income is crucial for a transparent valuation process.

In conclusion, when selling your business, your tax return and financial statements play a pivotal role in determining its value. Avoiding common pitfalls such as misclassifying expenses, reporting personal expenses as business costs, understanding capitalized vs. expensed items, factoring in interest expenses, and properly valuing property-related charges can significantly enhance the perception of your business’s financial health and ultimately lead to a successful sale.

At Murphy Business Sales Tampa, our team of experienced professionals can guide you through the intricacies of selling your business, including optimizing your financial statements for a successful transaction. Reach out to us today to ensure that your business sale journey is both smooth and rewarding. Contact Murphy Business Sales today – your financial future deserves nothing less than expert guidance and strategic insights.

WHY YOU NEED A VALUATION

by | Sep 9, 2022 | Business, Business Information, Buy a Business, Buying a business, For Buyers, For Sellers, General Business, Sell a Business, Selling, Selling a business, Valuation, Valuing

The buzz is that if you are a Baby Boomer and you want to sell your business in the next few years, then you are in the majority. You are not the only Baby Boomer and will possibly have your business compete against many more similar businesses in both model and industry. In order to be well-prepared, you will need a proper valuation. Establishing a baseline value of your business will help you overcome weak areas that keep you up at night. Why would a buyer want to buy your problems? Some savvy entrepreneurs will want your problems, but most will not.

 

Check out our short video on the different types of Valuations.

 

Roger Murphy, our CEO, explains the different types of valuations we provide.

Hire A Business Broker When Selling A Business

by | Sep 9, 2022 | For Sellers, Sell a Business, Selling a business

Selling a business is a complicated and an intricate procedure. However, business brokers play a fundamental role in getting along the process to make it a successful deal. There are several factors and cautions involved that should to be considered before stepping out to sell your business.

Finding the exact potential buyer and to avoid scams you need to hire a business broker. Brokers are professionals at introducing the buyers and sellers and support in finding the middle ground. The business broker will confidentially work upon the marketing process to sell your business, the word is kept private as it affects adversely on your sales and stimulate staff problems.

Unsatisfactory preparation is a key error that business owners commit. Important matters such as financial documentation, the profit and loss sheet, insurance or lease issues and legal concerns have to be well prepared as it will have an impact on the market worth of your business.

You can be an expert in running your business but not at selling it and your reluctance to leverage the business brokers can be destructive. As countless matters can only be looked after by your business brokers such as selling it at the best possible value, projecting your establishment’s future, market it at its highest potential, finalizing the necessary paperwork and catching the eye of secure qualified buyers.

The productivity and successful running of your business can be affected if you neglect it and spent time on selling it. The efficiency and the performance of your business is what you really sell which makes it compulsory to concentrate on it.

Sellers mostly fix the value of the business at very high rates without determining its real market worth, you should take some time and get in touch with market rates, and after it you can easily tag realistic and a well approachable price to your establishment.

As due diligence is important, you should be able to manage the protection and authenticity of representations made during the sale. You can discuss and seek help in significant issues from business brokers at sflabusinesses4sale.com on the subject of selling your business. Generally you hunt for replies to the questions such as the worth of business, assurance of the status and qualification of potential buyers, correct way of homework for the sale and course of structuring the deal. These queries can be handled in a perfect manner by a broker.

Think Like a Buyer When Selling Your Business

by | Sep 9, 2022 | Buying a business, For Buyers, For Sellers, Selling a business

When you’re hoping to sell your business there are a number of things to be concerned about. There are a few ways you can get a step-up on your buyer and anticipate their moves before they have thought them up themselves. If you want to swim with the piranhas you’re going to have to nip a few toes; if you want to sell your business, you’re going to need to think like your buyer.

Understand what the buyer is after – One of human beings greatest faults and one of the things which every business seller can be at fault of is being too rooted in your own self-interest. If you would take yourself out of the equation for a moment, you’ll likely find that your deal is skewed towards your own interests; at least in your own mind. Think about what the buyer is after; what could make this deal impossible for them to say no to? If all business sellers would simply take a minute and put themselves in their buyer’s shoes they may find that the work is done for them. The schematics of the deal will fall into place effortlessly if you let them.

Be Upfront when selling your business – You would hate to be trying to hide something negative about your business; be it the structure of the building, last year’s receipts, inflated accounting or anything else; only for this to be revealed later on and to be bitten by it down the road. Rather than fight that fight, be upfront. Not only does this tactic save time on the vetting; then the buyer is a lot more likely to be straight with you. You can know sooner if this deal is a good fit or if the time has come to part ways.

If you’re able to be flexible with financing, be flexible! – Financing is another bugaboo. If you’re the outright owner and are able to be flexible with financing you may as well offer that up as an option. This may allow you to keep your hand in the kitty just a little longer and enjoy continued fruits of your labor. Be wary of the hostile takeover – Don’t be too nice. If you feel as though you’re being stepped on, best to revert to a defensive pose.

It’s also a good idea to have a trusted partner on your side to help broker the deal.

Develop a Negotiation Strategy when Selling a Business

by | Sep 9, 2022 | Sell a Business, Selling a business

When you begin to negotiate the sale of the business, you will be much better off if you have developed a personal plan and have prioritized which items in the deal are the most important to you and which items you can compromise on and still accomplish your objectives.

  • Prioritize which items are most important in the sale. In every business sale there is negotiation where the buyer and seller have some give and take
  • Understand which things are important
  • Understand which things are not as important and where you can compromise and still get the desired results
  • Make sure to analyze what the post-sale looks like. Will you have enough money, what you will do with your time?

Small Business Seller’s Wish List

by | Sep 9, 2022 | Business, Sell, Selling a business

Today we are offering a wish list for a typical seller of a small business. Entrepreneurs who are selling their companies, as well as those looking to purchase, generally agree on what would make the process more seamless overall.

What the seller wants:

  • A qualified buyer – This not only means someone with the financial resources to meet a down payment and secure financing, it also describes someone with experience owning or managing a business — perhaps with some knowledge of the industry itself. A qualified buyer more than likely has established ties to the geographical area and if married or in a domestic relationship, has the support of his partner.
  • An appropriate offer – A seller appreciates an offer that is solid, reasonable and timely. Sellers expect contingencies to be a part of the offer, but also anticipate these to be realistic. One of the most common contingencies is a lease transfer with equitable terms for the buyer.
  • A practical due diligence phase – Sellers are pleased to answer questions and share pertinent data during the due diligence phase; however, buyers should take care not to pose queries or make statements that may be perceived as an insult to the seller. Common sense should dictate how the buyer should best introduce discussions on past decisions the seller made or how the business is run on a daily basis. Buyers should prepare their due diligence requests in writing and as soon as possible after the offer has been accepted.
  • A smooth closing – The closing should be a time of celebration for both parties, not a time for second-guessing, bickering or hesitation. Hiring a closing attorney experienced in the business transfer process helps immensely. By the time everyone is seated at the closing table, all questions should have been answered, all pre-closing paperwork completed and the buyer and seller should be confident this is a win-win situation for everyone involved.
  • An efficient transition – Most sellers, particularly those who created the business from the ground up, truly want to see the business continue to grow and prosper. Sellers want their buyers to be successful, and most will work hard to ensure the buyer is completely comfortable with all facets of the business during the training period that begins after the closing. This transition phase often involves introducing the new owner to suppliers and customers and showing the buyer everything related to running the business, from how to operate office equipment to the best way to manage employees’ schedules.

As a business broker, I have most enjoyed working with buyers and sellers who are forthright, reasonable and agreeable. Having realistic expectations on both sides and keeping a professional and positive attitude throughout the business transfer process goes a long way toward reaching a successful closing.