Like many owners, you may charge personal perks to your business to reduce your company’s tax burden.
These types of personal expenses are legitimate and usually include your health insurance, auto insurance, meals, entertainment like business golf outings, and other non-essential expenses.
Unfortunately, when you sell your business, the same personal perks that lower your taxes end up having a negative impact on your cash flow numbers.
Potential buyers and their lenders always look at what’s known as EBITDA – Net Income + Interest + Depreciation + Amortization.
Since EBITDA is the most common indicator of cash flow, it’s better to reduce or eliminate an owner’s personal perks a year or two prior to listing a business for sale.
At the very least, make sure you provide potential buyers with documentation of what you’ve taken out of the company’s cash flow in the form of personal perks.
Stay tuned for Tip #6.