Unreported cash can be a problem for a business, though these 318,462 reasons make it easy to understand why anyone would want to reduce their tax bill. But before hiding cash, under reporting revenue or beefing up expenses, there could be unexpected consequences every business owner should consider.
If the owner needs a loan, the bank is likely to turn down an application or not offer as much as the owner needs because the business looks weak. Forget that expansion you planned. Maybe you’d better move those slow-paying accounts to collections faster than you would like or perhaps wait until they come in before you increase your current inventory. It is also not unheard of for a bank call an outstanding loan based on a less than glowing financial report.
If an owner decides it is time to sell the business, the hidden cash, inflated expenses, and unreported revenue, can come back to haunt them. Buyers are skeptical and banks refuse to loan as much money as a buyer will need to purchase the business if the tax returns don’t reflect the actual financial strength of the business. A potential gold mine can look like a sinking ship that should be abandoned. Even an exceedingly strong business may have to be priced way below its real value to attract buyers. It may also mean the seller has to finance the deal to make the sale.
The value of the business can be improved over time…if the business owner has the time. But if something happens that makes it important to borrow or an emergency, health issues for example, makes it crucial for an owner to get out right away, the owner may regret taking chances—not to mention the threat of an IRS audit.
Peterson Acquisitions is here to help if you’d like to know how your business can be ready for any eventuality.