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Orlando Business Brokers – Not All Tax Record Deductions Are Equal.

Tax Deductions For Selling A Business in Orlando

When selling a business in the Orlando and Central Florida area it is important to have your financial figures in the best shape possible. At Crowne Atlantic, our Orlando Business Brokers work with potential business sellers and make recommendations on how a seller’s financials can look the most attractive. One of the benefits of being a business owner is having the ability to make personal deductions, one that a person who works a job might not be able to take advantage. Sometimes however business owners can get carried away with what they deduct and it is these questionable deductions that can cost a seller a higher offer from buyers when looking to sell their businesses. Tax records and financials all around are extremely important when selling businesses in the Orlando area because often times the buyer and seller do not know one another and the buyer might be new in town so they may have nothing to go off of but the tax records. Businesses with the cleanest numbers and the most easy understand business deductions typically sell for the most amount of money.

Marked below on the sample tax form is what most buyers and what most SBA lenders will first look at when evaluating earnings and potential deductions on a tax record. We circled them in red below. The three most popular business deductions the officer’s salary, depreciation, and interest expense columns. Buyers, accountants, lenders, and even attorneys will look at those three columns and add those numbers to the taxable income column first and foremost. These are what we call good deductions. See below:

Other examples of good deductions include amortization and owner’s health insurance because these are good and traceable deductions.

Here’s a list of other deductions that business owners often make that are not as good. Both Business brokers and Business Owners will factor them into the earnings when they show the seller’s discretionary income but they are not as accepted by buyers.

This list includes:
Auto gas (for personal use), Company Car (for personal use), Cell Phones (owner’s phone, spouse’s phone, kid’s phone, dog’s phone), Meals and Entertainment, Bad Debt, Advertising, Legal Expenses, Accounting Expenses and there are many more.

When evaluating businesses for sale in Orlando, there are good personal deductions that buyers can factor in and then there are deductions that are not as good.

None of these business deductions are bad, but they simply are not as good as they could be. A few thousand in deductions here and there is not a bad thing either, however deals become more difficult to pass through due diligence when these personal deductions become more sizeable. For example, using half the company’s earnings to pay for a Range Rover for personal use might create more issues than it’s worth. Another example poor deduction usage is putting expenses through the Cost of Goods section because it makes deductions much harder to add back.

As business brokers working in the Orlando area since before 2004, we work with business owners to position their financials and show buyers a true reflection of what the income of a business truly is. We provide this service on a regular basis and we sell businesses that have plenty of deductions all the time. Having fewer business deductions and having easier to trace deductions simply increases the chances of a business owner selling their business for the highest price.

If you have questions or need clarifications on how to better position your tax records and financials for an upcoming business sale please feel free to reach the Orlando Business Brokers at Crowne Atlantic Properties at 407-478-4101.

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