GAAP versus Cash Basis for Selling a Business

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When considering a sale, it makes sense to do an annual compiled financial statement that is presented on a GAAP basis versus Cash Basis, which is commonly used to report Income on a your tax return.  This GAAP financial can then be used for valuing and selling your business compared to using Tax Returns.

The reason for this is you do everything you can to minimize your tax burden.  This includes prepaying for expenses, buying inventory at year-end, buying equipment at year-end, etc. to employ tax saving strategies as advised by your tax professional or financial planner.

When preparing to sell, it makes sense to hire a CPA to do a Compiled Financial Statement on a GAAP basis. Why? GAAP tend to normalize income and increase Net Income which increases EBITDA. For example, companies on the NYSE that are publicly traded report on a GAAP basis because it tends to show more Net Income. As a business owner, you learn this the year you are forced to go from a Cash Basis Tax Return to an Accrual Tax Basis Return because you generally pay more taxes in the year you switch over because your taxable income increases. For this reason, taxpayers like to stay report on a Cash Basis for taxes as long as they can or until they are forced to do an Accrual Method by the IRS when they have $5 Million a year in average Gross Revenue.

When you are ready to sell, if you will have a GAAP basis Financials prepared, chances are, you will get more for your business and put more money in your pocket.

About Rick Krebs, CPA - Business Valuations, Mergers & Acquisitions

Rick Krebs - Mergers and Acquisitions Professional, Business Broker, CPA. Rick brings a unique blend of sales, entrepreneurial, and financial experience to Business Sales Group. He began his career as a CPA, working in Nevada and Utah where valuable financial experience was gained. He uses those skills every day. He graduated with a Master’s of Science Degree and Bachelor’s Degree from Utah State University. As a business owner he started Liberty Mortgage, a mortgage bank licensed in 23 states nationwide. He eventually sold the successful company to an investor from California. He has been in the M&A space helping people sell their businesses since July, 2010. During his first year as a business broker with BRC, he listed and sold more businesses than the entire office combined. As a sale-side and buy-side advisor for Mergers and Acquisitions transactions Rick's advisory, accounting, and management skills are invaluable when advising sellers as they maneuver the intricate details of the deal through closing. Rick is also a CNA (Certified Negotiation Expert) which helps him negotiate the most favorable terms for clients in a transaction. ​ Rick was quoted by FORBES as an expert sales-side advisor who helps Sellers avoid the pitfalls of selling a business.

Posted on February 19, 2018, in Company News and Announcements and tagged . Bookmark the permalink. Leave a comment.

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