If you have any thoughts of selling your business in 2022, now is the time to implement an important financial strategy.
Many business owners hold late year deposits until January or pay January bills early for tax reduction purposes. It’s also common for small business owners to not claim cash receipts and/or include non-business oriented expenses to the company finances. If you are considering selling your business next year, 2021 will become your proxy year for business valuation. Cashflow is a key component of valuation, and it’s vital to show as much cashflow as possible to obtain the highest valuation.
Cashflow = Net Income + Owner W2 Salary + Depreciation + Interest
For every $100,000 of revenue that is pushed into 2022, or cash not claimed, you might defer a tax payment of up to $30,000, but your business valuation may drop by up to $300,000 (3X cashflow). Loading non-business oriented expenses will have the same effect. This is a common misstep many owners make prior to a business sale.
If the time is right for you to prepare for a 2022 sale, the Crestone Business Group is here to help.