Business owners and buyers should hate cash businesses Why I Hate "Cash" Businesses And Every Business Owner And Buyer Should Too
Business owners and buyers should hate cash businesses

I get absolutely crazy whenever a buyer tells me they are looking to buy a “cash” business and I get equally nuts when a seller tells me there is more revenue than what they show.

I know, some of you are thinking I am out of my mind, and that may be so in regards to some matters, but when it comes to running a business or purchasing one, unreported income (a.k.a cash sales/under the table income/off the books money, etc) is a curse, not a blessing.

From a buyer’s perspective, how can anyone possibly pay for something they cannot prove? Talk about someone being out of their mind that is the definition of insanity.

Why would anyone ever buy a business based upon the seller telling them “there is plenty of cash that comes in that I don’t report” (wink, wink).

As a business owner, unreported income is not only illegal, it is plain stupid. First, I guarantee in any business, if the owner is stealing money, so too are the employees.

Second, instead of taking out cash, reinvest it in the business.

The potential growth that can result can be infinitely greater than what the seller “got away with”

. Third, since businesses are sold at multiples, all revenue and the resulting additional profits will yield a factor of two, three or four times.

Unfortunately, many business owners get into the habit of taking cash and their lifestyles require it.

If that is the case, then at the very least have enough foresight to halt the practice at least a year before you may be planning to sell the company so a buyer can validate the income.

As a buyer, never get fooled into paying for something a seller cannot prove.

In any business I have ever purchased when a seller expects me to pay for the cash they cannot prove, I always offer to pay them a multiple of the cash after I have had a chance to measure it for 2 years after the sale,. To this they always respond: “How can I know that what you are telling me will be correct?” and to that I always respond” “that is exactly my point. If you cannot trust my figures how can I trust yours?” I win every time.

If you run a business then run it properly. Put all of the income on the books. Doing anything else is not only illegal and cheats the government, it cheats yourself from investing more in the business and from the added value you will leave on the table when the time comes to sell.



This article represents a fraction of what you’ll learn on this topic in the How To Buy A Good Business At A Great Price© series - the most widely used reference resource and strategy guide for buying a business. To learn more click here

Recent Posts
The Biggest Mistake Buyers Make When Valuing A Business

When you reach the point of having to value a business for sale, buyers often handcuff themselves and do not even realize they are doing it. Although putting a price tag on a busin

Continue Reading >
Dealing With An Overpriced Business For Sale

When I first entered the business brokerage world a number of years ago, a colleague at the firm told me that “every business is overpriced the day it is listed for sale”. Ofte

Continue Reading >
The Issue Of Depreciation When Valuing A Business

There is usually a very healthy debate between buyers and sellers regarding each side’s calculation of the total Owner Benefits (OB) figure. First, let’s clarify what exactly i

Continue Reading >
Site By Consult PR
© Diomo Corporation. All rights reserved