Although not absolutely definitive, as will be shown later, sales turnover is amongst the foremost in many potential buyers’ minds when they first look at your business. Proving that turnover is so simple if you are properly prepared.
The next addition to your Prepare Your Business For Sale file is a collection of your VAT returns. Go back as far as possible, and from now on, you should add a copy of your VAT return every time you submit it to SARS. That’s an easy maintenance effort. Simply make an extra copy of the return, punch it and put into the file. At the same time, scan the return and place a copy in the PYBFS folder on your desktop.
If you are on e-filing, this is a simple exercise as you can print the return to “pdf”, and save it in your folder.
Why the VAT return? If your financials are unaudited, looking at the VAT returns is the simplest way of verifying your turnover. After all, you have to be psychotic to inflate your turnover to the VAT man. So the prospective purchaser has a source document that he can trust.
If your business is big enough to require an audit with the associated audited financial statements, this is still a good exercise because it will help a purchaser to understand turnover trends. Perhaps a difficult purchaser has been prepped to always ask for the VAT returns. Now you won’t have to argue – just hand them over. You may also want to take your purchaser along one step at a time, in which case you prove your turnover to him with VAT returns, before releasing your more information-heavy financials to him once you are more comfortable with him.
Why VAT returns and not VAT receipts? Well yes I know receipts are easier to find because they were sent to you, but they don’t have the turnover of the business registered on them. Always make a copy of the return when you complete it, and file it.
Not registered for VAT? Think that one through very carefully. The sale of your business may very well tip your turnover through the threshold. That will cause your selling price to be subject to VAT at 14%, and not the 0% which would otherwise be levied. If this is the case, you will be forced to sell your shares of the company, or your membership interest of the close corporation, instead of selling the business out of the company as an asset, with all the associated risks if you have not prepared things properly. More about this later.