Plan your business affairs for taxation or plan for business sale – they are not the same !
Often as business owners we are advised to plan our business affairs to minimise the taxation impact and accountants often implement various strategies to reduce our profitability on paper and therefore the amount of tax that we ultimately pay. Unfortunately, whilst this may help in the short term, it has a significant negative impact when we are approaching a sale as the reduced profitability in our financial statements leads to a buyer reducing their valuation of our business – ie the price they are about to pay. It is often difficult to justify add backs and adjustments to our lodged accounts leading to a higher valuation as in the due diligence process buyers will inevitably return to our financial statements and accompanying tax returns for a true picture of our business performance.
The issue then is really timing and a quote from Thomas Dewar – ‘The only thing that hurts more than paying income tax is not having to pay any at all ‘ – is highly relevant.
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