Yes, that title sounds like an oximoron, but it is the truth and here is why...The other day I was talking to a client who used me to sell his restaurants, twice so far. This client is young, smart, aggressive and hard working. He’d work 90 hours+ a week at each venture creating new and exciting concepts.
This client takes distressed locations and builds a viable business, creating value on each transaction. He calls me and I sell them.
So he’s out looking for a business and he’s asked me to help him find one. He ran across some very profitable businesses and I help him navigate through the maze of buying – he usually starts them and not buys them – and during this process I looked at him and said, you know you have a lot of talent and frankly you have the talent to make a lot of money and build a real organization, but your problem is you fail to understand how the business world works. He said “Mel I don’t have that kind of money to build a business!”
I said “Of course not. You’ve been raised to think skimming cash from the business is a good thing, that you're saving money. The reality it’s killing your future. You’ll continue to do the nickel and dime deals until you get the concept of reporting all your income makes you a legitimate businessman. There are other ways to reduce your tax liabilities and let the tax experts do that for you. But not reporting the cash is killing your future.”
I go on to say, “let’s take the place we just sold for $95,000. That business was netting no less than $13,000 a month or $156,000 a year. You operated it for 9 months; hence why we had it priced low due to no history of success. You turned a piece of coal into a diamond. Had you reported all your income on tax returns and paid all your taxes for two years or longer, we’d be selling the business for over $300,000, or $205,000+ more than what we sold it for, far less than any taxes you would have paid, get it! And to make matters worse, we could have gone to the bank to get a loan to open another location or two. In other words, by reporting your income, in the eyes of the banker, you have a viable business worthy of borrowing money to open a second and third location. That’s how one builds companies. But when you’re cheating everyone down the line, you’ll always be doing nickel and dime deals because the legitimate lenders and investors can’t trust you.”
Yes, it is hard to break a bad habit, especially when you’re writing check to the government. But as one can see from the above discussion, paying taxes is actually a good thing if you’re trying to build a viable and loanable business. Otherwise you will be a nickel and dime dealer your whole career.
And a good CPA tax person will know what needs to be done to defer or even avoid taxes. So don't be cheap, because in reality you're losing more than what the CPA would cost you, you're losing a lot in fact!
We at SellingRestaurants feel obligated to educate the public, our customers and our clients with information that can help them make more intelligent buying and selling decisions.
Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry. Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer. Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world. There he participated in more than $11.5 billion of merger and acquisition transactions. He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University. Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions.