We all hate paying taxes. Why would you want to pay more taxes at any time for any reason? Selling a business and borrowing money (which, at most times, the two are tied together) are both cash flow related. Buyers of companies value provable cash flow above all. Banks and other lenders value cash flow and the buffer it gives them for loan repayment.
The most believable and credible cash flows are shown via a company’s tax returns. What company would report more taxable income than needed? That is why in the years leading up to your business sale, paying taxes is truly an investment in a higher multiple paid for your business. It will also make it easier for the buyer to sell your deal to their lender.
Please read the importance of tax returns when selling a business.
Selling a Business Tax Considerations
If all the Owner’s Benefits are hidden in Amex bills, Home Depot receipts, and your home yard service, it will make it more difficult for a buyer to secure financing. A solid business appraisal, backed by tax returns that tie back to the internal financials, will give both the buyer and their lender comfort.
In addition, perhaps you are selling or transferring your business to a family member. Thus, cash flow from tax returns is good data. It will minimize the IRS attacking the transaction as not being at arm’s length. You may also need a business valuation for tax purposes.
Read here to understand the business valuation process.