Buying cash businesses

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November 21, 2022

by a searcher in Los Angeles, CA, USA

How do you approach (if at all) buying businesses that deal mostly in cash, limit reporting to the IRS (and are therefore not SBA eligible at the valuation they're looking for), but have receipts and can prove the revenue? Is this a non-starter?

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Reply by a searcher
from University of Pennsylvania in San Francisco Bay Area, CA, USA
Interesting question.

If the business keeps all the receipts, and not too big (not an easy target for IRS), I am not sure why one cannot buy such a business. Yes, there is the risk of being audited by IRS, which will be tedious and scary, but if you can weather that, it should be fine.

And especially if you can use it as a bargaining chip for a more favorable valuation.
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Reply by a professional
from University of Akron in Charlotte, NC, USA
Its a personal decision as with any acquisition. Remember,.. first priority is risk mitigation, which is why most avoid cash-centered businesses. If you believe the numbers, then no reason not to buy. In fact, probably can find great deals because most would avoid. You must do asset sale to avoid liabilities and do indemnification agreement as well.
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