Subjective Answer – None
Previous topics have covered how taxable income is typically “tax managed” to report the lowest possible income amount. That amount is completely contrary to seeking the highest amount possible for your company.
We also covered that tax returns are almost always on a cash basis which does not provide an accurate portrayal of the true economic performance of your company.
The deficiencies of tax returns goes on and on.
Tax reporting and GAAP reporting have many dissimilar concepts.
Many times, tax reporting is not even timely. A private company should have their prior calendar year financials completed by January 20th. Tax returns are due in March or April (depending upon business type) and are often extended up to six months from their original due date in March or April.
If you have a very small company generating less than 2,000,000 a year your tax returns might be the only financial information available to share.
Buyers always require provision of tax returns, but it is not to evaluate the financial profitability of the company.
First and foremost, it is a due diligence box to check. They need to ensure that all tax returns are filed on a current basis. This indicates a level of responsible compliance on behalf of the owner.
Second, returns and payments are reviewed to ensure that there are not any back taxes. Penalties or liens outstanding.
Third, they evaluate to see if they might be able to secure certain tax treatments or benefits in the future.
Buyers will value your company based upon the financial and operational data that you share with them. Not your tax returns.
Always make sure that all of your tax filings (Federal, State, Sales, Excise, Property, Personal Property taxes are all filed on a timely basis.
If you have outstanding taxes, penalties or liens notify your M&A advisor on day one.
These problematic topics need to be managed and communicating in the least emphasizing manner possible.
Keep your buyers focus on your financial successes and away from taxes.