The thing about ‘cashies’ is that the business people doing them often haven’t graduated much past the level of cabbage maths. They often wrongly believe that the equation is as simple as 1+2=3 but the smart business person knows it’s far more complicated than that.
- Before you even start making money out of a ‘cashie’ you need a discount of at least 48% to cover the GST and Tax refunds that you’re losing out on (15%+33%).
- Not only that, you also need to factor in:
- – the increased risk of being audited
- – the negative effect a deflated set of accounts has on your ability to borrow
- – how much less you’ll get for your business if you sell it
That’s why the rebellious article (below) struck a chord with us and we thought you’d enjoy us sharing it:
Cashies a No No – by Clyth MacLeod Ltd, Business Brokers & Valuers
Sometimes when listing a business the owner suggests there are cash benefits that do not show on the financial statements – some revenue not banked, staff paid “under the table”, or company-paid expenses that are not strictly necessary for the production of income. We really do not want to hear this!
We cannot (and will not) quote this to prospective purchasers. The owner has told us that he (or she) is dishonest. They are defrauding the taxman, and ultimately their fellow citizens. And, if caught they could face harsh penalties. No one likes taxes but they are necessary to keep the country running.
The silly thing is that it is not really a bright thing to risk. We had a prospective vendor recently who started to claim he did not declare $100,000 income last year. If he did he saved paying some $33,000 in tax. If he had declared it his profit for the year would have been $100,000 more and the value of the business would have increased by over $360,000 tax-free!
And if he really did take out that much cash from the company how did he spend it? There is a limit to how much you can drink and eat. But when you spend it on cars, boats, and travel the IRD can check your possessions against your declared income.
As always, honesty pays.