Q. I am looking to buy a business. I’ve had my accountant value a couple that I was interested in, however the valuation came in well below the asking price. Am I looking at the wrong type of businesses or are they normally over priced?
A. It is not uncommon for the price of a business to exceed its true value. There are a couple of reasons for this.
Firstly, price and value are not the same thing. In a perfect market they should be, but we don’t operate in such a market.
Normally price will trade at either a premium or a discount to value. Price is a measure of the current market and available supply and demand. Where there is a limited supply of a particular type of business or a good quality business then it is likely that the business will trade at a premium to value.
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Tags: Business valuation & appraisal | Sale of business
Posted in Business Scruples (Q&As), Export, Infotelligence |
Q. I read your recent comments regarding some of the tax differences between operating a business through a company or trust structure. We use a family trust and a friend has told me it is important to distribute the trust income at the end of each year. Can you clarify what he is talking about?
A. I assume your family trust is a discretionary trust. Subject to the terms of the trust deed this should allow the trustee to decide each year who they are going to appoint the income to. This creates the flexibility of income distribution that we spoke about last week. Once the trustee has resolved who will be entitled to the income of the trust, then that person or entity is taxed on that share of the income.
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Tags: discretionary trust | Tax & accounting compliance | Tax strategy and structuring | Trust income | Trusts
Posted in Business Scruples (Q&As), Export |
Q. We commenced our business about 3 years ago. It has been growing steadily and our turnover should pass through the $2 million mark this year. A number of my friends have suggested that we are better to stay below this level for tax reasons. Are the advantages such that we should limit our present growth path?
A. It is generally not a good idea to make business decisions simply based on tax reasons. Tax should be considered in the same way as any other business expense. You should try and reduce it legally to its lowest point, but don’t let it influence the development of your business.
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Tags: CGT Small business concessions | Tax strategy and structuring
Posted in Business Scruples (Q&As), Export |
Q. We are expanding our business and looking at what will be the best operating structure for the future. Our decision is between a company or a family trust. Is one clearly better than the other for tax purposes?
A. Companies and trusts are both commonly used structures. One is not necessarily better than the other. They are different. Often the choice of the right business structure will come down to your plans for the business and its future.
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Tags: Family Trust | Tax strategy and structuring
Posted in Business Scruples (Q&As), Export |
Q. We operate a service business and we engage a reasonable number of contractors. We find this gives us more flexibility managing workloads. None of the contractors work exclusively for us. Some have their own company and others work in their own names. A friend recently mentioned that we should look at our tax exposures. What is he referring to?
A. The use of contractors by businesses is on the increase. Flexibility and cost control make it a popular alternative to employment arrangements. In most cases where contractors are engaged, the business is seeking to remove itself from the compliance burden associated with employees. This includes tax obligations. And this is where the risk can be.
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Tags: superannuation guarantee
Posted in Business Scruples (Q&As), Export |
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