Clients rarely come to us when everything is hunky dory. There’s usually a problem that necessitates a change.
In order to explain this case, let’s use an example…
Joanne B. Owner, not her real name, had a chain of eight specialty retail stores in Illinois, Wisconsin, and Michigan. Given the seasonality of the business, she employed between 35 and 50 workers, owned all of the real estate where the stores were located, and had gross sales in the $7M to $8M range.
When we originally met, she was 67 years old and was looking for an exit strategy. The problem was that she’d employed the same bad excuse of an accountant for the past thirty years who’d done a terrible job.
She’d never wanted to pay taxes, and her accountant had provided her with the results she was looking for. In looking at the Income Tax Returns, there was very little from an accounting standpoint that was done correctly.
1 – Revenues either weren’t recognized or were recognized incorrectly
2 – Expenses were over-deducted
3 – Assets that should have been capitalized and depreciated were expensed. This brought down the value of the Balance Sheet rather than propping it up for the sale.
This was a larger sale so we went back three years, cleaned everything up, and amended the returns. The initial estimate provided by the business broker was that the real estate and business would sell somewhere in the $8M range.
We closed the transaction at $10.6M.
The three years of financials were audited by a team of CPA’s on the buyer’s behalf. They didn’t find one problem.
And it all came down to one basic concept.
When you get the bookkeeping right, it’s easy to get the income tax returns right. When the bookkeeping is wrong, you’ll never get the income tax returns right. Period.
I spoke to “Joanne” a couple of weeks ago when I completed her latest 1040. She’d moved to Saint John and asked me when I was coming.
Let me leave you with this…
Joanne’s problem is a common one that I see with regularity. It comes down to the fact that you can’t have it both ways.
If you want to sell your business you need financial statements and tax returns that properly reflect your financial condition. They need to be conservative, showing as fat a bottom line as possible.
But you can’t do that and save money on your taxes at the same time. It’s one or the other.
In this particular instance, it could have cost Joanne $2.6M. But she came to me, and we fixed the problem.
Employing someone who might not be the most upright of tax professionals can have unintended consequences. The extra $2.6M paid for her tax liability on the sale.
Think about it.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
www.SalarySolutions.net
www.AccountingSolutionsLtd.com
Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.