Pocketing Cash Sales is Costing You Big Time 🤑

In the hospitality game, it’s tempting to keep a bit of cash off the books – a cheeky way to dodge some tax. But what feels like a win today can blow up in your face when it’s time to sell. Not only does it shrink the value of your business, but it also makes the whole sale process way harder. Here’s why stuffing cash under the mattress might be your worst business move yet.

If you’re running a squeaky-clean operation, pat yourself on the back and sit tight for the next email – this one doesn’t really apply to you. But hey, it might still be worth a read just to appreciate how smart that decision was.

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Less Profit on Paper = Less Value

Selling a business isn’t just about finding someone who likes what you’ve built – it’s all about the numbers. Businesses are valued based on a multiple of their profits (yes, other stuff matters too, but none as much as profits). The higher your profits, the higher your business value. But pocketing cash to dodge taxes can cost you way more than you save. Let’s break it down.

Im going to wildly oversimplify the business appraisal process here to make my point...

Let’s say your business profit on paper is $100,000 a year, and businesses in your industry are valued at a multiple of 2.3.

• $100,000 x 2.3 = $230,000 in business value

Now, let’s assume you’ve been pocketing $100,000 in cash sales each year. That means your real profit is actually $200,000, but only half of that is showing up on your books.

• $200,000 x 2.3 = $460,000 in business value

That’s $230,000 in lost business value!

Now, let’s look at what you might have saved in taxes that year by not banking that $100,000. In New Zealand, company tax is 28%. So, if you declared the cash, you’d pay:

• $100,000 x 28% = $28,000 in tax.

So by dodging $28,000 in tax, you’re sacrificing $230,000 in business value when you go to sell.

Sure, it might feel good to keep that $28,000 in your pocket each year, but when the time comes to sell, you’re going to regret it.

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Awkward Conversations and Lost Trust

Here’s the thing – buyers want to trust the numbers they see. If you’re skimming cash, they’ll smell something’s off, and once doubt creeps in, it’s game over.

It's likely your buyers going to request a turnover check to verify the cash. This involves the buyer sitting in your business for a week or two, observing how much money comes through the tills to confirm the cash you claim your taking actually exists.

Now imagine trying to explain to your staff and customers why a stranger is suddenly hovering around, watching every transaction. Trust evaporates, and with it, the likelihood of a smooth sale.

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Banks Don’t Care About What’s Under the Mattress

Even if you manage to convince a buyer that the hidden cash exists, there’s still a major problem: banks only lend based on documented profits.

Banks aren’t interested in your under-the-mattress stash of cash. They’ll only lend based on what they can see in the financials. If the profits aren’t on the books, the buyer won’t qualify for financing.

That leaves you in a tough spot – fewer buyers who can pay what the business is really worth, and lower offers from those who can make a deal work. Without bank financing, you’re likely to be forced into accepting a lower offer, all because your profits didn’t look right on paper.

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Play the Long Game: Bank It All

Skimming cash might feel like a win in the moment, but it’ll cost you in the long run. A clean, transparent set of books gives buyers confidence, makes the sale process easier, and ensures banks are willing to finance the deal.

Banking all your cash sales isn’t just about avoiding awkward conversations or securing finance – it’s about getting the true value of your business.

So next time you’re tempted to pocket cash, think beyond today. By banking every dollar, you’ll unlock a smoother sale, higher offers, and more options when the time comes to move on from your business.

Because at the end of the day, transparency isn’t just the honest thing to do – it’s the smart, profitable play.