3 things to do before you sell your business

Many business owners are considering selling their business in the current economic cycle. Here are three things you must do before you sell your business.

1. Ensure the book income reported on your federal tax return agrees with the book income reported in your accounting system. This seems like a no brainer, but if your tax accountant is not providing you with adjusting journal entries each year, then book income will not align with what is reported on the federal tax return. This is a problematic.
2. Make sure W-2 payroll reports match the accounting entries in the company’s income statements. Again, the buyer will match the W-2 reports to the company’s financial statements. Another issue may be that owners are receiving distributions throughout the year, and the tax accountant converts the distributions to wages at the end of the year. Technically, each month should be adjusted so the company’s interim statements record W-2 compensation of the owners in the correct month.
3. Make sure all capital leases are recorded on the balance sheet. Some tax accountants will record the payments on a capital lease in the income statement and not record the capital lease on the balance sheet. This lowers your net income and under reports the company’s debt on the balance sheet.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.