For those of you that know me, I'm a straight shooter type of guy. You'll always get the straight story from me. So here's a straight story.
Being a restaurant broker has some wonderful highlights as well as lowlights. Most of the lowlights are surrounded by debates about the value of the restaurant particularly when the owner is skimming the cash.
Here's the problem with skimming cash. When the owner wants to sell at a high price, there is nothing to substantiate the high price other than a "shhh...come here let me show you my other books..." and that simply doesn't fly with buyers today. I often say to the owner "would you buy a business based on "Shhh..let me show you the real profit..." no you wouldn't, I'd say.
In addition I'd add that "you've already taken a chunk of equity out of your business by not paying your taxes and you want to get paid again!" Frustrating to say the least.
But a closer look at numbers shows that one is better off reporting all the income rather than stealing for the government. Let's say that Mary wants to sell her business and she has been skimming $70,000 a year out of the business. That's a tax saving of about $28,000 a year. In other words she avoided paying $28,000 of taxes each year.
Now as a broker, all I need are a solid three years of reported income. What happened before that isn't important. In that three years Mary took $84,000 of her equity out of the business by avoiding paying taxes ($28,000 X 3). Now Mary wants to sell.
Mary is showing no profit on her tax returns. This restaurant on paper isn't worth much. It is an asset sale.
But had Mary simply paid her $84,000 in taxes, which is the honorable thing to do, she'd be reporting $70,000 of profit and the business would be selling for more than $150,000 in a heartbeat! That's a whole lot more than $84,000!
After such a sale, Mary can then put her head on the pillow and go to sleep knowing she played by the rules and won!
So you can either play by the rules and win, or you can cheat and lose. Seems like a no brainer to me!
Visit my Website at www.sellingrestaurants.com for more information about buying and selling a restaurant or call me at 800.576.3615.
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.