Business Notes Bust or Bonanza!

The practice of “hiding” income is commonplace in the world of small business, but off the books income will not add to the sales price or worth of the business. In fact, most likely it will have an adverse affect and decrease the value of a business. As potential buyers for the business are going to be wary of a business seller who insists that an unverifiable income will be included. As you can see income verification can become a double-edged sword, whereas if the buyer is not willing to be above board with Uncle Sam, then most likely s/he will not be honest with a potential buyer as well. And the potential buyer could blow the whistle on the Seller, therefore creating havoc on the whole transaction.

It would be better for the seller to simply learn about the multitude of various tax advantages that are now available to the small business owner, so that s/he can shelter their income in a verifiable and legal way. Even more problematic are the instances where sellers fail to properly account for the tangible assets of the business, and the appropriate value of those assets. Far too many business sellers have not accurately kept good records, as some tangible assets may have been “expensed out” in the same year as the purchase under favorable tax guidelines, rather than capitalized. These assets are frequently overlooked. And intangible assets are not normally recorded on a company's books unless they were purchased from outside the company.

Those that were generated internally by the existing owner do not show up on the balance sheet, including identifiable tangible assets. Chances are high that your client purchased a preexisting business, and again, when it was resold the parties involved all took the easy way out by simply lumping all the intangible assets together into everything else and classifying it as “goodwill” rather than carefully segregating those discrete intangible assets that could have been expensed out, depreciated, or amortized, and properly valued accordingly.

Intangible assets often represent the largest component of economic value of a small business or professional practice. Note investors are very interested in making sure these asset values have been properly accounted for, particularly if some of these intangible assets have collateral value as hard assets, which will usually increase the viability of the note. But what if you are coming late to the party? Or what if your client already sold his business and now is holding a business note and now needs cash? What if the note is a little wrinkled around the edges? No question, that could pose a problem... but thankfully, in many instances, these poorly crafted deals can be salvaged. For more information, go to fastcashfunding.com.