If you had subscribed to my newsletter on the right, you’d have just gotten my free guide on “How to Maximise the Value of Your RetailBusiness”. Below is an excerpt on a controversial topic – skimming off the till.

5. Be Truthful

This is not a mini-guide on morals, but the fact is… being truthful usually means more profit and less frustration in the long run. What do I mean?

Take skimming off the till as an example. This is the practice of taking cash out of the cash register (i.e. not declaring all income on the tax return), which means less tax needs to be paid. And for most owners, it sounds good because they save money. But aside from being highly illegal, till skimming also affects the sale price dramatically.

How? As a simple example, let’s say you take $1,000 out of the cash register each week without declaring it. This equates to $52,000 a year. Taking it out of your BAS statements, you save about $4,727 in GST payments (= $52,000 divided by 11). That leaves $47,273 in post-GST income.

If you pay a flat company tax rate of 30%, you save $14,182 by not declaring it (= $47,273 times 0.3). So in total, you save $18,909 in taxes (= $14,182 + $4,727). Pretty good, huh?

Now let’s look at when you sell your business. Assuming the current earnings multiple for your industry is about 1.5x, your business could’ve been worth $78,000 more if that income had been declared (= $52,000 times 1.5).

So what’s the result? If you take the cash now, you’d be making a net loss of about $60,000 when you sell your business! Ouch!

If you enjoyed reading it, subscribe to the newsletter (on the right) for the full guide.

Chris Khoo
Business Broker

Credit: Cash register image by thiagofest

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