It’s natural attrition to avoid paying tax. Since we were kids we’ve heard people complain about having to pay tax so understandably when we get into business we continue this trend and do everything in our means to avoid handing over our hard earned cash to the government. However have you ever stopped to think about the effect of this tax minimisation when it comes time to sell?
Paying tax does have its upsides. If we’re paying tax then it means we’re making a profit. Secondly, our bottom line is important, particularly when it comes to selling a business. See outside of adding back interest, depreciation and amortisation, all other add backs are frowned upon.
Most business owners never stop to think about this but when it comes time to sell, and when I say time, I mean three to five years before you sell, you’re bottom line, and therefore you tax position, becomes extremely important.
As business owners, particularly mum and dad operations, we spend countless hours and efforts trying to avoid paying tax by concocting schemes, paying personal expenditure through the business, and yes, kids school fees are personal not business, and so on. We put all this energy into ripping our own business off but never stop to think about the implications.
Firstly accept that paying tax is inevitable and that it’s not a bad thing. Let go of your resentment at the government for charging you such rates here in Australia. Think of it as a cost to live in a country where we don’t get shot at on a regular occasion. Secondly, plan for tax. Forecast what your business will earn and how much tax you will be liable for. Ensure you keep this in reserves for when the bill is due. Get in early and get your return out of the way, or at least get your accountant to complete your figures, you may not have to submit them straight away but at least your know your position.
And finally, think about the implications of cooking your books to avoid tax. There is a chance you could be audited but think of what will happen when you go to sell. Ensure your stock figures are correct, your expenses are all true business expenses, no school fees or home renovation costs, and always reconcile accurately. Your tax figures should look healthy, not like a sick puppy, remember every dollar extra you get on your bottom line you’ll receive as much as five dollars back when you go to sell in sale price.