Taxes can help a buyer evaluate the revenue of a business for sale.

November 11, 2009

Business sellers like most folks really don’t enjoy paying taxes.  Yes, really.

A wise business buyer, uncertain about the true revenues of a business for sale, can get a sense of reality by examining sale tax and federal income tax filings.  Usually sales tax filings include a record of revenues received and are usually filed close to the end of the reporting period.   Likewise federal income tax reporting shows total revenue, though often these reports are filed much after the end of a period. Because these two forms of reporting result in payment of taxes, entrepreneurs are likely not to over report.  A combination of prior year income tax returns and current year sales tax reporting gives an up-to-date picture.

Note:  Often sales tax reports will also show total revenue, not just that requiring taxation.   Because this is the case, the buyer should only use sales tax reports in verifying taxable revenue.

It can be risky to buy a business for sale without tax returns (and accountant) examination.  Business sellers should be prepared to have tax documents for examination by the prospective buyer.

Follow this link to more information about buying/selling a business:  http://www.myownbusiness.org/s10/

Be careful!

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