Paying tax is good If you want to Sell
Paying tax is good If you want to Sell
All those years running things through your business to keep the tax down, it's time to go the other way the more tax you pay, the more profit you are making. Anything of a private nature, leave it out, to the point of if you need some stationery for home, go buy it yourself.
Most businesses have similar key areas that any potential buyer will be looking at.
Systems. There's a reason people still buy franchises despite knowing they will be paying top dollar for many years to come in franchise fees. When they buy a business, they come with a system. Just like baking, if the system is right and followed the new owner will have a successful full business and their cake to eat.
Sales. I'm not suggesting that you do but if there are any sales that have failed to make it into the accounts, now is the time to make sure they are included. Remember the business stationery cupboard is not yours, and neither is the stock. If you want it, pay for it.
Staffing. A couple of options here. The important thing is you want the staffing cost to be as low as possible.
Option 1) Be open and honest with your key staff that you are looking to retire/ sell (it gives them the chance, maybe they want to secure their job). It is also time to let them know you are going to be holding things at the current wage level for now, and any bonuses will be touched up when you sell.
Option 2) Keep them in the dark and just "forget" to give them any raise and miss the bonuses. be ruthless, it's time to push the staff. you don't need three staff in the shop, two will do. Be ruthless, you will have some key staff, but most businesses have staff members that have been there for years and are just not as productive or useful. Now is the time to reduce hours and make them jump. If the new owner sees they need 3 staff in the shop they will be adding up the cost’s going forward. But less people equates to less overheads.
Owners' remuneration: You may want to consider reducing your own salary if you are paying yourself more than actual work. It's time to separate paid hours vs Directors/Shareholder's Salary. Keep it clear how many hours need to be put in as a business owner, the less, the better.
Stop spending, well minimise spending in capital investment where possible, but not at the detriment of the business continuity. So you have been thinking of putting a fresh coat of paint in the shop. just leave it for now. Any potential buyer is likely to throw it all out and bring their own touch so they won't care about that new standing desk. Of course, if something breaks it will need replacing.
Have a look at your contracts, are you paying for unneeded telephone lines, or extra data on the internet, Telco’s love securing commercial contacts many business owners never review their services as they are so focused in their business and not on the business. Earlier this year we came across a business paying nearly $800/m for the business phones. A quick talk revealed he could get a better plan for all the staff included for around $120/m with another provider. Using a standard valuation method, $680/m difference is $8,160/pa or $20,000 extra value to the business sale price.
Time to trim the rest of the fat/ expenses from the business. Look at your bank statement and what is coming out, (I like to do this every 6-12 months personally too, you dont need Netflix and Neon at home, just deal with it). Do you need a regular computer maintenance plan with someone coming in each month and monitoring software,, maybe just pay for it once it breaks. likewise, there is going to be things in the building that dont need to be there. Purchase the copier lease is coming up for renewal, ask for a shorter contract, or better yet, just run month to month so the "committed" expenses can be stopped anytime.
By Shawn O'Grady
HAVE WE GOT YOU THINKING?
Give us a call on (04) 563 6965 or email: dennis@taxman.co.nz or shawn@taxman.co.nz
Keep an eye out for October’s article!