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The Good Question Podcast
Exit-Ready Ecommerce Reuben Mattinson On Tax Compliance, Valuation & Scaling For Acquisition
00:34:43
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- [00:01]
A
You're listening to the Good Question podcast with Richard Jacobs. Our goal is to make each of our guests exclaim, hmm, that's a good question. I don't know the answer. Because when that happens, it means you, the listener, may be inspired to learn more beyond the interview and to ask great questions yourself that lead to new insights. In this podcast we cover historical and current anthropology, comparative religion and history. Welcome and let's get started.
- [00:36]
B
Hello, this is Richard Jacobs with the Good Question podcast. Yesterday is Reuben Madison. We were talking about exit ready operations for a business, how proper compliance may add millions to your business valuation. So very interesting subject. Appliance doesn't sound interesting, but adding a lot to a business valuation and exiting would be fantastic. So thanks for coming, Ruben. How are you doing, Richard?
- [00:56]
C
Yeah, doing really well, thanks. It's a pleasure to be here. Yeah.
- [01:00]
B
Tell me a bit about your, your background. How know, are you a business broker? You know, have you exited and sold multiple businesses? Like how did you come to know what you know?
- [01:08]
C
Yeah, I mean I've got a pretty interesting background to be honest Richard. But I will keep it short as not to bore you, but I originally started off in the healthcare industry, so I was actually a physical therapist was my first degree. So already you're thinking how on earth are we going to get from there to tax compliance? But we will. So that was our first career and then I actually was a science teacher and examiner up to college level for a while as well. And then I moved into starting my own e commerce businesses online selling product into the US through doing that process I realized how difficult it was to jump through all of the different compliance tax hurdles of selling to every state in America as an online business, which you don't typically get through, you know, being a brick and mortar store. And I spotted a niche for it really because I wasn't getting much joy with the law firms and the accountancy firms I was speaking to. So through doing that we started IGM Tax Exemption, my main tax consultancy business. So since then we've worked with over 5,000 businesses and obviously that very closely feeds into exiting because as we'll talk about today, people will come to us to make sure all of their tax is in order before an exit or sometimes panickingly during the process of them having an exit if they've done it a bit late on.
- [02:28]
B
Yeah, what does that mean? What's one example of it done right versus done terribly wrong?
- [02:32]
C
Yeah, I mean terribly wrong is really people have just voted for ignorance is bliss. Which we, I think we all do in some areas of our life, but not a great area to do it when it comes to your business. And then they've gone and got a great deal on kind of in principle on their business. I'm going to sell my business for $10 million. And then of course the dreaded audit comes, which it will, you know, top to tail and then the business gets looked into and then a lot of different types of taxes are exposed which they didn't collect or they weren't register to, or they didn't do. Right. And therefore they're going to have to now pay a huge amount of money to clear that, sort it, fix it or they're going to have to renegotiate their sweet $10 million deal down to get that person who is interested to still buy that business. But yeah, you said an option where it's done really well, just the people who do it right. You know, the people who little by little they do the right thing day by day and it builds up and it adds up and they keep a nice healthy business. Kind of like as we look after ourselves as people, if we do the right things on a daily basis, eat the right things, exercise a bit, do the right stuff, if we're doing that for our business, we're going to have a very healthy, good looking business ready to exit on.
- [03:39]
B
Yeah. Why would someone have a problem when they sell their business besides owing taxes on the net gain where the problems come from?
- [03:46]
C
Yeah, there's many, many different angles as you can imagine. A big one is sales tax. So when you're selling products online and there'll be many people listening who are involved in online sales. You have products being sold into a huge number of states across the whole of the United States. And each of these different states are going to have different regions, reasons for you to have to be registered to them. And that's typically called Nexus. So if you've got nexus in that state, you should be registered and you should be collecting sales tax when you make sales to clients in that state. And that can be triggered by loads of stuff. It can be triggered by just your economic, you know, volume that you're selling. It can be triggered by physically where your products are located, where your staff are located, where your offices are located. And it can be triggered by even smaller things which people miss all the time, which is where affiliates are actually based, who are referring people to your business or where website are owned from, who are referring people to your business or maybe even where you've done trade shows as A business around the U.S. all of these things can trigger the fact that you should have been collecting a sales tax. And if you weren't, what can become very apparent is you owe a huge amount of sales tax to, you know, a handful or in some cases a lot of states. So you've got sales tax.
- [04:55]
B
What if you sell software as a service? Like, what if I do websites for people?
- [05:00]
C
Yeah. So states are becoming more and more aggressive when it comes to wanting people to collect sales tax AS well. For SaaS services, you're not as exposed as selling some types of services and physical products. But it's becoming more and more widespread across the state. So, yes, where again, it's a good point to bring up, Richard, but where people were protected before, they're not really protected anymore, so they have to be careful of that.
- [05:28]
B
Oh, so, all right, so sales tax, what other. What are the type of issues when people have.
- [05:33]
C
Yeah, I mean, another common one, and this is one which people don't often realize, and I think it's quite an unfair one. And, and when I approach this as, you know, a tax consultant, I have to tell people the black and white of it. And then people have to ultimately make their decision on, well, I need to weigh at my risk here and my risk to cost ratio. So this one is what we're talking about, state tax. So really, when you sell products and services into states across the U.S. there are reasons that the states, again, can make you have to register to them, firstly as a, you know, a foreign business, out of state business, or actually to register to state tax. And again, if you sell products into the state, even if you're not located in it, most states, in the rules, they actually say, well, you've got trade happening because you're selling to people in our state. So actually, if you go black and white, if you sell into all of the states, basically all of them require you to register to them. So if you're a really large company and you've been making huge volumes of sales into various states and that happens to, people can obviously start to get pretty worried when it comes to an exit where they're thinking, well, there's a state going to come after the entity because it's attached to the entity, not necessarily the owners per se, once they've exited and sold. So you've got to be very careful with that. The reason why people often don't register to all of those is because they're, you know, a small and medium business and they're thinking, well, I can't Afford to register to every single state and do all of the filings and you know, it's reasonable enough. But this is more kind of medium to big companies. They get hit by the, the state tax as well without realizing.
- [07:09]
B
Medium to big, like if you sell for above X, you're more likely to be exposed to this.
- [07:14]
C
Yeah, I mean it is about volume. It can be volume of units which turn heads, but it can be just volume of yeah, dollar value. You look, you know, you've probably got to be doing well over a million to start to be turning heads. When I say large companies, we're probably looking at upwards of 5 million. But obviously the higher the volume you're making, the more you're exposed. Because the state can then say, well you owe X amount of tax on volume into our state, which is where people are weighing up that risk. Well, if we're not making too much volume of sales, why would I register to that state and pay this much money for registration and this much money for filing when if they catch me I'm only going to owe 50 bucks. So that's the kind of conversation that people often have with their tax advisors, with their consultants of having to really play this game of risk as it were. Because obviously if they're getting caught, they're not going to get chucked in prison. It's a financial game, it's going to be how much they owe and potentially worst case scenarios, maybe getting their business paused on being able to sign contracts and function within a state. But it is a bit of a chess game, particularly when you've got a way up costs that you're having to cover in your overheads that you have on a business.
- [08:20]
B
I'm sure different states have different nexus triggers, but when you said a million, does that mean $1 million worth of stuff sold into a state or a million units?
- [08:29]
C
Yeah, a million dollars. I was thinking when I think of those typical businesses where you're starting to get yourself a bit more exposed now because Maybe you've SOL $50,000 into a state at that point and a state could turn around and say, you know, you owe us 5% on that. And then another state does that in another and it can accumulate quite quickly to a decent volume that you owe because states can communicate with each other as well. So again it's, there's no just clear rule of it, but it is, it's up to the person's risk appetite.
- [08:58]
B
Oh, so there's like no deeming exemption or you know, how does someone know to whether they should be concerned or not, does it depend on the state? Like there's some notorious, you know, money snatchers that want every penny or what?
- [09:09]
C
Yeah, few. There are a few. I'm sure you can imagine the ones which are the more aggressive. So your larger populous states, so you're looking at California, are typically known to be the most aggressive and they even, we've not touched on this yet, but they enforce quite aggressively, even franchise tax as well. So if you do business in their state, which they claim, again, if you just sell products to people in their state, if you store a product in their state, even more so they will come after you and charge you like $800 minimum franchise tax a year just for doing business in the state. But yeah, state tax. So they will come after you for that as well. So yeah, there are states you're looking at like, I guess New York as well is quite notorious for that.
- [09:52]
B
Are there other kinds of taxes that could be major problems versus, you know, sales tax? Again, the tax and the gain. What else could be an issue?
- [09:59]
C
Well, the sales tax is, is the, the one you've got to watch out the most because really if you get caught and let's say you've made a hundred thousand dollars of sales into California and they're actually going to say, well you should have been collecting sales tax on sales in the region of 10%. They're going to turn around and say, well, you owe us $10,000 and actually owe interest on that and penalties on that. Whereas if they said you turn around and owe a state tax or your state tax is going to be a much, much lower percentage as an out of region, out of state seller. So sales tax is the big one. But yeah, you've got to be careful because I've touched on franchise tax. Again, Texas has franchise tax which people typically aren't aware of.
- [10:41]
B
Again, what is franchise tax? What does that mean?
- [10:44]
C
It's pretty much just an additional tax for them to say that you're, you're doing business in. You've crossed a threshold of being classed as doing business in our state. So it's kind of an excuse to tax people who aren't registered for state taxes we're talking about. So it's almost like an extra step of, well, you might not be registered and paying estate tax, but you're going to have to definitely pay this. And they're I guess a bit more aggressive on. But yeah, you've got to watch out for those. And there's other little ones dotted around as well, you know, B and O tax in Washington is another one of these. So it kind of, yeah, it's a very complex world and there's just so many things that you can miss. Which is why, again, getting ahead of the game, assessing these things, really looking into it, early doors, it's not just going to protect your business as you grow, but it's going to make that process in the future exit and just so much easier.
- [11:33]
B
Will the average business CPA know any of this or is it so specialized that even they don't know?
- [11:39]
C
That is a really great question. So one of the best questions I've been asked on a podcast, I think, actually, because it's the, it's the absolute nail on the head of why we started as a business. Because I was going to law firms and accountancy firms and CPAs and paying through the roof to have the privilege, nay, honor of speaking to them, to which they were pretty clueless on this stuff. Richard, you're right. They, I think this whole sales tax and, you know, franchise tax and state by state laws for a general CPA is, it's kind of below their pay grade because they want to get, they want to get hands dirty with the serious tax. Right, the income tax, and they want to give you advice on that. And they want to do big audits for big businesses and big costs. So, yeah, actually this is how rgm my business was born because we thought we've got a niche to have some really great specialists and professionals who don't need to be CPAs, don't need to be paid a stupid amount of money, but can actually offer a phenomenal level of service, which I think is how that's kind of landed, as in the number one rating position on trustpilot. It's that combination of the pricing and the reviews that we've had from clients. But that's why. Yeah, really great bringing up a really great point to bring up because people will just flock to CPAs and think I have to speak to them for this type of stuff. And as I say, they'll often overpay and under deliver.
- [12:56]
B
So what would be a good illustrative example? Like maybe I sell pincushions and I've been selling to 20 out of the 50 states for like the past 10 years. And now I get an offer to, you know, to sell my business for like, I don't know, five million bucks. How could you help me to, you know, to have something left, left to the end of this whole thing and not get in trouble? I've never had problems before. I never been approached by any of the states. I never collected any sales taxes or franchise or anything. But, you know, I'm in Texas again and I sell Pink cushions for 10 years. Like what, what would you start looking at to see if I have a problem?
- [13:28]
C
Well, congratulations first for surviving 10 years in the cushion and pillow business. It's a hard one to survive, fiercely competitive, particularly the pink ones. But yeah, basically what we would look at is, well, where have you been exposed in the past then? So we would first look at you, all of the usual things. Well, where have you stored your product, where have you been doing business? Where have you been fulfilling your orders, where's the volume of your sales been going to have you have had affiliates referring people to you, all that stuff. And what we would do is we'd get a general picture then of, well, how much should have we collected that we didn't in these particular states? And you've got to then make a decision, well, oh, actually I should have. I owe about 3,000 to California, I owe about 2,000 to Texas, whatever. And we can look at it and think, well, also what you do in these scenarios is you do VDA's of voluntary disclosure agreements to the state if you so wish. And you say, well, look, California, tail between the legs. I'm sorry, all right, I should have done this. I should have collected it. Can you waive my, maybe some of the fees if I, if I do this for you? And can you waive maybe the tax that I should have paid back seven years behind the last three years? So maybe just do the last three years and what you'll often find is the state will agree with you ahead of time and you can actually pay a lot less if you are the one who is voluntary disclosing versus if you catch they catch you, they're going to come down, you come down on you like a ton of bricks. Equally, if the company who's auditing you and you come to exit from this beautiful cushion, you know, business, if you get caught that way again, they're going to think straight away, these guys aren't honest. They're not playing an honest game. So we would look at all of that kind of exposure they've had and we'd weigh up how can we cross off this, get our business sorted. So when we present it, presenting it with honesty and transparency, transparency, we've actually cleared any of the big issues. That would be the sales tax first and then I guess of the state tax again, you've got to maybe kind of think well, what the chances that this state is going to think that I was doing business in it and should I do the same with them? But your biggest exposure is going to be your, your sales tax, potentially your franchise tax of California. So we do it that way. And I think a lot of people would just again, ignorance is bliss and hope they don't get caught. But generally people come out better, you know, honesty being the best policy. People hate that, that phrase, how do you feel?
- [15:45]
B
How do caught.
- [15:46]
C
Yeah. Do you know what another great question because a lot of people think, well, how am I going to get caught? Yeah, like surely I'm an out of state seller, how are they going to track it? So they have loads of ways of tracking it. So in your pink pillow business, the pink pillow club, you basically have been selling online and you've been using a payment processor to process your orders. And that payment processor, like they actually submit a 1099 for you and that actually will go to authorities and they'll be able to see the volume that you've been doing as a business. Also state can communicate with payment processors, say California and say, well, how many sales have they made into our state? And then when California finds out, they chat to the, you know, neighbor down the street and then, you know, Nevada finds out or another state finds out and another state finds out. They also communicate with fulfillment centers as well and delivery centers, if they've got estates, can find out the volume that have been coming in as well through for shipment. So there's loads of ways they can do it and you'd be surprised. But again, in order of tax which they pursue the strongest is always sales tax because that is the best payoff for a state for the work that they'd have to put in to chase it up because they're always going to be able to get the most money off you that way. And it's actually the easier one for them to track as well. So you've got to be careful. And if you've been selling across multiple platforms because you were such a successful pink pillow business as we know, Richard, then you've been selling on Amazon as well as your own website. And then Amazon actually communicate with these states as well and so does other marketplace facilitators like Walmart and Etsy and ebay. And before you know it, you've got this cascade of you've been exposed and you've been found out quite quickly.
- [17:24]
B
I mean, I don't know, I can't know nearly everything, but what percentage of businesses just never seem to hear anything or have trouble, you know, down, down the road they'll may close down, they may sell, whatever. But do they like what's the audit rate or what's the rate of, of notice for these, these states?
- [17:41]
C
Yeah, not, not super high as you can imagine. I mean I don't have the data for the clients that we've worked with to hand over the, you know, 5,000 plus and out of them who have exited and, or who have I guess even just been audited. Yeah, I'm not even including exits but you get a general idea you're looking at about 20% for sales tax. I would say if you've been running for a good few years. Obviously it's down to the years that you've been running but let's say you've been running 3, 3, 3 upwards years, probably 20% ballpark. But as you've touched on the people who've got away with it, it's when they come to the exit, as we know, no one is going to buy a business off anyone until they've done a full audit. And anyone who, any company who's doing a really good audit for someone, maybe even they've got a CPA to do that you're going to get found out at that stage in it. Which I guess is why it's really important that we're talking about exits today. Because that's almost impossible to avoid if you've been lucky enough to avoid it up until now with the states themselves
- [18:36]
B
but then going to report you. But they're going to say hey, there's a liability. Therefore yeah, we're going to have to withhold X amount just in case they come for us once we buy you.
- [18:46]
C
Classic. Yeah, yeah. So when you once had a really good deal, it's dropped or it's actually just made them question a lot more things. Because you had a voluntary chance when they asked you is there anything you want to disclose before we do the audit? And you're like no, actually our business is great. Then they find it out, they're second guessing you on everything. Now they're thinking, well actually were they honest about their profit margins? Like were they taking cash and under the table, like what were they doing here? So again it's building that level of trust with the person you're selling to I think is really important. Which again is why it's better to come to someone like us and get your, your act together before you approach that sale. So you can kind of hold your head up high and think, well you know, I've got nothing to hide here and I kind of know how this is going to play out.
- [19:29]
B
Well, what if you say I just, I just sell pink pillows. I had no idea about franchise tax and you know, sales tax. Me, accountant does my stuff once a year. I have no problems. I pay my federal state. You know, I'm trying to be disingenuous. I just didn't know, I don't know about this stuff, you know.
- [19:44]
C
Well, I would say, Richard, the path to tax hell is paved with good intention. And I would say your intentions may have been good and pure, but ignorance isn't bliss in the, in the business industry. And I get it wasn't deliberate, but we're now going to be really exposed and we're, you know, we're going to maybe have to cough up a load of dollar out of our own pocket. So we need to now knock 5 million off the sale price. I'm sorry about that. And you know, you can say no, but you know, the same thing is going to happen when someone else looks have to go for the audit process again with another business who's going to look at you and it's going to be awkward and slow things down for you. So just take the 5 million less price, Richard, and let's, let's shake hands.
- [20:24]
B
I guess the alternative then, with your help is it's disclosed early on, you know, yes, there's potential sales tax and franchise tax. These seven states, these are the amounts we've already voluntarily disclosed to them. You know, we've gotten answers back on four of the seven, we're waiting, that kind of thing. And then, then you shouldn't have a problem or how would that be perceived?
- [20:44]
C
Yeah, exactly. You can say, well look, we've got proof. Here are all of our filings, here's our correspondence of the state. You're not going to owe any sales tax and we've disclosed all of this and you can trust that we've made the right decision on behalf of the business there. You don't need to worry about that. You've got the trust there. You know, the business isn't having to bar you down as much as well because they're not worried that they're going to owe the sales tax. So there's a lot to it. And obviously the sooner you start this the better because we're kind of painting the picture. They've waited till death's door to come to us, like we've said is on us. The worst case with us, the better case is that people come to us in the first months of their business, even in the first year when they're seeing that growth and their pink pillows are flying off the shelves in that first year that they come to us and actually they never have to even do a voluntary disclosure agreement because they were just on top of it. And they've never had to pay any fines or penalties, never had to pay large amounts of money to companies like us to quite urgently fix it at a higher cost than if it was just done at a slow and steady rate looking after their business.
- [21:44]
B
What about when you. Here's where I have heard of tax structuring is selling the business over three years so it's an installment sale instead of, you know, trying to net everything up front. You know, is there any intricacy there that is that just so commonplace everyone knows about it, or is that another area which you can help?
- [22:02]
C
Yeah, to be honest, it's slightly out of our area of specialism. But the tax is pretty much the same for that. You're going to be looking at a level, a certain level of auditing on each partial exit or each partial sale sale and again, similar issue in the process that if the business is going to be looked at at that point and when money changes hands in any time at any reason, they're going to need to have kind of a peace of mind that the business is being run well.
- [22:26]
B
Well, what if you sell to someone that is ignorant and they're not paying sales tax? Like let's say you don't do it, you have no idea, you sell your business to somebody, it's over a, you know, three year term, they have no idea. So they still don't collect any sales taxes. Now like year two of the sale, you're supposed to get your second big chunk now. Oh, a notice comes through and you know, whose fault is it? It's like, is it both parties fault what happened to them?
- [22:51]
C
That's a really good point. Well, I mean morally it's the person's fault who started the business and did it wrong in the first place. But the person who has the liability and the responsibility is the person who's left in the business with, you know, the, the lion's share of the company ownership. And that is a really good point that, that kind of. Yeah, I mean, you see it happen a lot in the business world anyway, don't you? When that responsibility just gets passed down the line, you know, oh, it wasn't me, you know, someone else, you see that so often makes a quick company ownership switch or director switch and that Porsche muck comes in, tries to pull the shoes and doesn't know the half of it. So yeah that that does happen as well really.
- [23:27]
B
So if you're going to do a large sale, I guess what would be significant? You know like if your business is going to sell for 5 million or more, the business owner should definitely speak to someone like you or what would be the threshold?
- [23:39]
C
Yeah, I think it's probably more important for, for the sake of sales tax as we're saying is the worst tax to be exposed to to is to just look at what was with the highest volumes of sale that you made into any state. Because obviously you could be an online business still selling to all states but actually and you may have only sold a million in a year but maybe 500,000 of that was to California because maybe they they flipping loved you pink pillows in California. You can imagine they would there in California. And in that case you might only be a million kind of valued business or million turnover, whatever you want to value at. But your sales have been really high in a particular state. So it' very much worth speaking to a business like ourselves to check what, what the situation is there and what VDA we could do for you there, if that makes sense. I mean if you're selling across all states relatively evenly, obviously your volume would have to be higher for you to be kind of exposed to that equal level. But you want to look at the largest volume that you've done in a particular state.
- [24:39]
B
What would someone, you know, if I was looking for you, what would I call you? How do I find people like you?
- [24:43]
C
So I mean, yeah, how our business started as I say was I was just searching on line, you know, kind of sales tax compliance firm, sales tax help, whatever and we were just hitting wall after all of high level law and accountancy firms. So I mean businesses like ours, it's very much a niche of its own. As I say for us to be this level of specialist at this topic but to be charging the rates that we do, we're just very accessible online. You know if people wanted to find us, you just find us on a Google search on our gem tax exemption. People can book a free consultation with us as a business that's not super common as well. Typically you'll pay if you're up different consultations with other businesses. But we're starting to become a bit more common. I think people are starting to realize that as we touched on earlier when you asked that really great question about CPAs that they're overcharging and under delivering. So I think there is a definite disruption in this space happening and I'd like to say that we're the company who's heading up or one of them at least who's charging the way for it. But you're going to see more of us popping up online for sure over the next few years.
- [25:47]
B
What have you guys went to the state of California or New York or wherever and said, hey, you know, there's no way you're collecting 100% of this stuff. We can help to get more voluntary disclosures. No, you're not going to get everything. But in aggregate we think we can get you more than you're getting currently now. And they'll lick their lips, hopefully work with you. Like, do you think you could partner actually with states?
- [26:06]
C
Oh, that's interesting. I don't know what the analogous to that is. It's like I was like, yeah, it was a bit like Darth Vader that I was like questioning Luke that I was a bit kind of being pulled in like daf. Is that you? Yeah, I think obviously it would be a bit of a conflict of interest of presenting client and the state, so. But yeah, if I wanted to sell my soul to California, maybe I could be on one of those Los Angeles yachts. As we speak, it's failing off, but. But I'm not planning on it anytime soon, Rich.
- [26:36]
B
I mean, is it public record when states will go after companies for sales tax and franchise tax?
- [26:42]
C
So yeah, they basically, they can request information they're coming to like an accountancy firm level. Level. They would be requesting it to the business entity, not to us. If they really pushed for it, they probably could, but it's not typical practice for them to be going to like accountancy firms to do it. They're gonna, as I say, they're gonna find you out other ways. The thing they generally try to do is build a case of evidence against you before you even realize they're doing it. So when they put it through the post, you're already caught. So like, oh, we've already caught your volume of sales and your location of your products, of your warehouses through communicating with Amazon, FBA or for your payment processor or whatever. There's no question about it. So they'll, they'll evidence as possible. And obviously if they come to us and they're like we're digging evidence on this person, they're going to be like, well, conflict of interest. And actually you've got to speak to them directly. We could, you Know, actually in that case they're going to be getting like a legal representative if they're going to go down that line of trying to protect themselves. But typically what businesses will do is they'll just, they will disclose the information because they have to. But I'm trying to wash my hands of that. Again, I want to be on the, you know, the good side, not the dark side.
- [27:46]
B
No, no, for some, for some actions, it's required to publish it publicly. Like lawsuits, you know, you could always look them up publicly.
- [27:53]
C
Yeah.
- [27:53]
B
Bankruptcy.
- [27:54]
C
It would be within reason. Yeah, for sure.
- [27:56]
B
I just wondered if you could do that with this kind of stuff. Notices, you know, like ordinance violations. I wonder if this kind of stuff shows up publicly in a given state, anywhere where you could use it to. You probably don't need the help. But I was just thinking.
- [28:07]
C
Yeah, no, it's an interesting question. It's not something that's actually kind of fallen into our wheelhouse before, per se, but I like it when I'm asked a question like that. That makes me think. So, yeah, we have a couple questions.
- [28:19]
B
What would be a complete package for. So if someone wants to sell their business and let's say they're going to get. Just making this up, it's pretty significant, you know, like, I don't know, 5 million, 10 million. They should obviously contact you. It sounds like for the sales and franchise portions and then for the structuring portions on the sale. That sounds like another tax specialty that you say they don't do as much of, but those two kind of creatures. Is there anyone else that you think should be on someone's team tax wise? Is there yet another type of specialty that, that needs to be addressed?
- [28:47]
C
Yeah, a chance, a chance to shout out. I won't name names per se, but yeah, you'll definite a representative who is going to look at the, the income tax side of it in more detail, the corporation tax side of it in more detail. The writing off your profits and losses, particularly when you come to the sale, you know, the exchange of handing over the business. Yeah, there's a lot of legalities to that. So when you get into that side of it, you're going to go higher up the ladder and your, your cost is going to go up. But it obviously becomes probably even more important as you get into that kind of stuff with it. So you're going to need some, some legal, legal advice at that point to make sure that's all leveled out and thankfully where we stay one step away from that because obviously that's A very intense world at that point. And it's kind of like who. Who has the bigger ego? Who has the bigger kind of reputation in the business, who can scare people into doing certain things or whatever, or protect businesses this way or whatever. People will, I guess, say a lot of interesting things about themselves to. To get them into those positions. So yeah, that will be required.
- [29:56]
B
Would have had I've been fishermen or something. I get a pretty big canning operation and I'm tired, I'm old. I try to sell the business. I'm a baby boomer. I can't sell it and I'm going to shut it down. To shutting down a business, expose me to the same potential problems as selling one.
- [30:11]
C
That's a great question. How are you full of these questions, Rich? Honestly, I need to come back in more often. So yeah, actually it can happen. It's obviously not as common, but types they called kind of, we call that ghost type ax like that comes back to haunt you keep wiring the ass
- [30:28]
B
on the way out the door, Jack.
- [30:29]
C
Yeah, exactly. Yeah. Poor guys work, worked his whole life. Fish just good old honest fishing and cannon and doing his thing. And California send him just one final present through the post. Look, Barry, you owe us $10,000 in sales tax and $5,000 in franchise tax. All the best on your retirement. Yeah, so it does happen. It does, does happen, but obviously less often because your business activity will end. So the tracking of it and you being flagged up and as I say, you know, 1099s or whatever being submitted through whatever way you're processing money is going to drop off. But yeah, those tax ghosts, watch out for them as well.
- [31:09]
B
And then again, transfer of ownership of a business. So if I'm buying one again that hasn't been tax compliant in sales or franchise since and my advisors, I just didn't have good ones. I bought this business. Am I now likely because of the transfer that certain states will wake up and say wait a minute, let's see, now there's a loaner, let's go after.
- [31:30]
C
Yeah, I think whenever there's any updates to any document, particularly when it's digital, it's more likely to be checked. So yeah, you do need to be aware of that. And that is a really good point. And that can just create the change in ownership. It can even be something as simple as a change of address and it then gets reviewed. Oh, what business is this? Let's have a look how long they've been running for. Oh, right, okay. Yeah. And that can turn heads for sure.
- [31:52]
B
Okay, well, very good, Ruben. This is like a big time eye opener of this call. So what's, what's one central place for people to follow up that are, you know, unfortunately pooping their pants after hearing this call and need your help?
- [32:02]
C
Yeah. Well, I'd say come to our website if you want some just, I guess, free guidance. You want a free consultation with us, we're not going to hard sell you anything. We just love to have a conversation with you. We'll do just a general tax compliance and health check for your business for free as well, just to give you an idea of where you stand. So you can just head over to our website, JM so Romeo, Juliet, Mike, tax exemption.com and yeah, we'd love to help you if we can and just take some of that burden off you and hopefully de stress you a little bit as you, you grow and move forward in your business.
- [32:35]
B
Yeah, last thing I should have asked you earlier, but what's, what's a story that sticks in your mind where you're like, holy cow, I'm glad I'm me and not them? Even though you were able to help the person, you know, like rejected. What's like a horrific story, a nightmare that you dealt with.
- [32:48]
C
Ye. Again, not, not naming names, but we can talk about the story, of course. Yeah, there was a pretty successful business that was not going to name the specific product selling a successful product. A different type of pillow. It was a blue pillow this time. And yeah, it was, it was a case of their business wasn't run very well. So their revenue kind of flow of cash was okay and their profit was all right, but they were, were on their kind of, I don't want to say last legs, but near to it. And I think they probably could have turned it around. But what happened is they started to get found out by the state of what they owed and slowly but surely the amount that they were owing was building and building and building. And I think it built up to a region of around $200,000. And obviously for some businesses they're going to think that's not a lot, but for them in that situation, it was just really sad to see, like this is just the final nail in the, the coffin, you know, and I think they could have turned it around. They had a pretty decent brand, they had a good following. But that was really sad to see and I guess where. Yeah, I was glad that wasn't me. Sure.
- [33:53]
B
Well, very good, Ruben. Like I said, it's been great to talk to you. Thank you for doing this and you know, love to talk to you again in the future.
- [34:00]
C
Richard, thanks so much for having me and thanks for all of those great questions as well. You take care and hopefully speak to you soon.
- [34:06]
B
If you like this podcast, please click the link in the description to subscribe and review us on itunes.
- [34:13]
A
Thank you for listening to the Good Question podcast. Please email supporthegoodquestionpodcast.com if you have any referrals to great guests for us to interview, visit thegoodquestionpodcast.com to hear more interviews. And please help us spread the word by rating and reviewing us on Apple podcasts, iTunes, Spot, Spotify, YouTube, or wherever you listen to this podcast.