By Ron Buck
If you are considering selling your company in 2017, here are three things you should be doing (or not doing as the case may be) between now and year end.
First, plan now with your accountant to be first on their list of tax returns to be completed in 2017. Buyers and bankers prefer to see tax returns for the most recent year and will not give full weight to internally generated P&Ls. So plan early, talk with your accountant, and get yours done early – don’t get caught in the March/April crush with everyone else, and by all means, do NOT plan on filing an extension.
Second, don’t Give Up $2 to Save 30 Cents by expensing unverifiable, undocumented personal expenses that we won’t be able to add back to your cash flow calculation. As the linked article explains, it is a terrible trade-off as the title indicates.
Third, now is not the time to aggressively manage your year-end taxes – particularly if you are simply accelerating expenses and deferring revenue recognition. This is more detrimental to your overall financial gain than Giving Up $2 to Save 30 Cents. In this situation you are really only saving the net present value of a year’s delay in paying the inevitable tax, but could be decreasing your company’s valuation and your gross proceeds. At this point of your exit strategy, your financials should reflect the fundamental earnings capacity of the business so that potential buyers can clearly see the cash flow and profitability opportunity in front of them. With the exception of contributing to retirement accounts (which is easily documented and added back) and perhaps a few other items, have an in-depth discussion with you accountant and M&A Advisor and leave the tax and accounting gymnastics out of the equation.
With a little planning, forethought, and discipline, your actions over the next few months can significantly improve the prospects of selling your company, successfully executing your exit strategy, and maximizing your net worth.