The Horrible Mistake your Accountant Makes – and How it Could Keep you From Ever Selling your Business.
I like my accountant. She’s smart, steady, responsive, and consistently gives me sound advice. But she’s human and she makes mistakes -- and one mistake she makes over and over again is potentially devastating. The mistake?
She listens to me.
In most cases this is what you want your accountant to do, but your accountant's “listen to the client” problem can kill your chance to sell your small business.
We Think It but We Don’t Say It
Most business owners think about selling their business from time to time. I know some of you are thinking about it right now. But even as we think about it, we never talk about it.
After all, who are you going to talk to about it? (Other than me, of course) Your employees? Watch the resumes flow off of the office printer. Your bankers? Didn't you just spend hours convincing them to increase your line of credit? Your attorney? Who can afford that?
We don’t talk freely about this subject. It’s too easy to see the risk (real or imagined) in talking about our desire to sell someday. Most who are thinking about selling don't even tell their accountant.
We keep this secret to ourselves, but there's something we don't count on.
The Numbers Count
Almost every small business sale includes a serious analysis of the business' financial performance over the last three years. There is a financial story to be told, and your financial statements and tax returns tell that story. Any buyer, especially one using outside financing (bank loan, etc.) will look closely at your results.
What will they see?
Well . . .what have you been telling your accountant to do?
We Get What We Ask For
More than likely your accountant listens to you. They hear you complain about taxes. They hear you talk about aggressively sheltering profits. You repeat . . .
Help me lower my taxes!
So they approach your year-end moves and filings with that goal in mind, and you end up with tax returns and financials showing how little your business makes. That's a good thing right?
Now fast forward a few years from now. There you are, sitting across the table from a potential buyer (and their banker) and you’re talking as fast as you can saying . . .
The tax returns aren’t as bad as they look!
Your accountant gave you exactly what you asked for. You took their advice and you made aggressive year-end moves, and now you’ve unintentionally put the sale of your business at risk. You never told them you were thinking about selling your business.
They listened, but only to what you said out loud.
Maybe you need to start asking for what you really want?
Talk Your Way to Success
Tell your accountant if you’re thinking about selling your business 3-5 years before you are ready to sell it. If you don’t know exactly when you want to sell, tell them you want to sell "someday". Say it out loud. Let your goal to sell compete with your goal to reduce taxes.
Wait, you want me to pay more taxes?
Maybe, or maybe not – that’s not the point. The point is that your accountant has skills and tools they can use to help you reach your goals, but they must understand your goals for that to happen. Don’t overcomplicate this. Before you file this year simply ask your accountant this question:
How would we approach my taxes and year-end planning differently if I were thinking of selling my business 3 years from now?
Maybe they’d change nothing, or maybe they’ll suggest dramatic differences. Either way, you might be surprised how a few small tweaks can improve your potential for cashing out of your business in the future. Reality limits what can be done to impact financials and tax returns, but every business owner knows that year-end moves can make a huge difference to how reality is displayed.
My accountant has a flaw – she can't read my mind. To know what I want she has to listen to me, which means I have to say it. Your accountant probably has the same problem. Do yourself a favor and tell your accountant right now if you’re considering a sale anytime in the next 5 years.
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