When it comes to reporting income, you, like most small business owners, want to pay as little in income taxes as possible. Consequently, you and your accountant actively look for ways to delay reporting revenues and accelerate reporting expenses.

When it comes to selling your business, you have just the opposite objective. You want to show the business making a large profit for many years.

Buyers usually look at the tax returns for the previous two to three years. This is why it is so important to start the process long before you want to sell your business.

There are three ways that you and your accountant can accomplish these conflicting objectives:

• Identify and create an audit trail of those items that are expensed on the business tax returns but will not necessarily be incurred by a new owner, i.e., personal use of a business vehicle.
• Do not deduct items which are personal in nature for which you do not wish to create an easy-to- follow audit trail.
• Make sure that all income is being reported on the tax returns

The tax return is one of the key documents that buyers will use when they are deciding if the business is really earning enough money to justify buying the business and how much they should pay for the business.

Small businesses usually sell for between one to three times historical earnings from tax returns. Every dollar of income that is hidden in the tax returns can mean one to three fewer dollars in your pocket when you sell your business.