Strategy #5: Reduce The Amount Of Your Personal Perks.
Many small business owners charge personal perks to their business to reduce their tax burden. These include health insurance, auto insurance, meals, entertainment and other non-essential expenses. As a result, personal perks can represent a large percentage of cash flow to owner. Although these are completely valid expenses, first-time buyers often have a difficult time understanding owner perks and may dismiss these numbers completely when conducting their cash-flow analysis.
Keep in mind, 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 wise to reduce or eliminate an owner’s personal perks and non-essential expenses a year or two prior to listing a business for sale. At the very least, make sure you clearly document all cash flow to owner in the form of perks