You decide to sell your business in California.
The question then comes up: Are you keeping accurate financial statements?
Owning and operating a business in California is difficult enough at the best of times.
It is even more challenging when you first start. Whether you like it or not, there are laws that you must follow as a business owner.
Those include both Federal and State laws, as well as the tax requirements of the Internal Revenue Service and state taxing agencies, whether it is just to collect sales and use taxes or, as we have in California, personal and business taxes. Learn more about minimizing your taxes when selling a business in California.
Having accurate financial statements is just one way to make this legal compliance easier.
Starting simply to keep accurate financial statements
One recurring theme I’ve learned from owning and selling businesses in California is to start by keeping it simple.
As the business grows and evolves, get tax advice from a professional. They can help ensure that mandatory requirements are not being missed, which could jeopardize the business’s future. Plus, they are constantly changing, and you have better things to do with your time.
Currently, I am working with two different businesses that their owners wish to sell in California.
Still, both have tax issues that threaten the very existence of the businesses, let alone the value the owners are seeking to gain from their sale.
In one case, the business grew so rapidly that the owners failed to create an accurate set of financial statements. In their case, they were fortunate, as 11 months into their fiscal year, I was able to see that their financial statements were not accurate. As a result, they hired a CFO and a bookkeeper and totally rebuilt their financial statements.
The unfortunate part is that, just two months into this massive project, they received a letter from the IRS stating that a lien had been placed on their business and funds had been removed from one of their business accounts due to unpaid taxes.
Use your accurate financial statements to help guide your decisions
If you own and operate a business in California and want to enjoy the rewards from your efforts, consider the following.
- When a business starts, for good reasons, Keep It Simply Simple (KISS.) The best way to keep it KISS is to start as a Sole Proprietor and file a Schedule C as part of your personal tax return. Not only does it keep your legal and accounting costs down as there are no forms to complete, but it also saves you time worrying about which entity to choose, filing the necessary paperwork and working out what else needs to be done so you are in legal and tax compliance. For example, a bank won’t open a business account for you without a copy of your legal entity, and so it goes on.
- Another good reason to start as a Sole Proprietor is how you pay yourself. If you are a Sole Proprietor, you simply take an owner’s draw and don’t have to worry about payroll taxes, filing quarterly and annual payroll reports with the IRS, etc.
- If you plan to open for business, be sure to check with your local city or county to determine if they have any business name registration or filing requirements. Once again, they are pretty straightforward, but it’s essential to complete them. It’s also a time to take pride in opening your business and want your local community to know about it.
- Does your business require any occupational and/or business permits to operate? If you have occupational license requirements, you should already know those, as you would have learned during your training. Business permits are also a local government requirement; therefore, please get in touch with them or conduct a Google search.
- Worried about lawsuits from customers or neighbors? Well done. The solution is straightforward. Get an umbrella insurance policy by contacting the insurance agent who has your insurance on your home and/or vehicles.
- We all work from habits. It takes approximately 21 days to form a new habit. Implement a straightforward method to manage your petty cash and accounting. Every business has to know its weekly numbers or at least its monthly numbers. Those numbers tell you a story about the performance of your business. If sales numbers grow each month…great. If your expenses increase at a rate slightly less than your sales numbers, that’s also great. If you don’t like bookkeeping, which most entrepreneurs don’t, as they have other things to do, get help and get it right. It’s that important.
- It’s common to hear the statistic that . This statistic keeps repeating, and so it’s essential to learn from it. By definition, an entrepreneur has an idea, takes it to market, and adapts accordingly. Most entrepreneurs learn on the job because there are very few classes that teach the skills necessary for success as an entrepreneur. There are classes to teach medicine, law, accounting, engineering, etc, but these don’t teach business.
Seek professional help to make better decisions.
Once your business gains momentum and its future is more stable and secure, now is the time to talk with your accountant and attorney to find out your options, hear their recommendations, and then decide. It also triggers several paperwork tasks to ensure everything is set up correctly. If that’s not enough, you’ll need to submit reports and other notifications to government agencies regularly. You won’t be able to open lines of credit with suppliers, bank accounts, payroll processing services, and other financial services.
Starting a business and doing all of the above from scratch can be intimidating. A better option can be to consider buying the rights to a franchise and following its processes and procedures. A second option is to find an existing business for sale and pick up where an existing business left off, but that’s another situation for another time.
If you would like more information about selling or buying a business, or a related service such as business valuation, please visit my web page, Services.
For more immediate help, contact Andrew Rogerson, a Lifetime Certified Business Broker (LCBB) based in Sacramento, California. Call Toll-Free at (844) 414-9700. If you prefer, email him at support@rogersonbusinessservices.com. Andrew serves the whole state of California.
Further Reading