How to prove Cash Sales when Selling or Buying a Business
A Business with a large number of cash transactions will probably use a Cash Register. If you are selling your Business, you should keep copies of your “Journal Tapes” also known as X-Tapes and Z-Tapes as evidence of Cash Sales going through your Business.
The X-Tape should show a prospective Buyer a continuous record of each transaction recorded with a Total (basically a running tally). This Till Tape reading should identify the type of payment received (e.g. Cash, EFT, Cheque etc.), and the type of purchase (i.e. Cost of Sales e.g. grocery, liquor, coupons etc.).
This type of reporting is valuable in proving to a Buyer the Sales put through your Business as it can be generated at any time without affecting your Z-Tape (end of period Til Report).
The Z-Tape should show a prospective Buyer a summary of the accumulated Total Sales for a certain period (e.g. daily, weekly, monthly, yearly). Once the Z-Tape is produced/printed, the register is reset/closed off and therefore offers a reliable record of previous sales as it can no longer be changed (much like your end of year Tax Report).
Most Businesses will run a Z-Tape at the end of each week or month to help track how the Business is travelling from week to week or month to month. This type of reporting is valuable to a prospective Buyer as it can show them your weekly or monthly Sales including any Cash Sales recorded.
Without the Til Tapes as evidence, a Business heavily made up of cash sales will need to be prepared to verify their Sales by way of a weekly “Trial” of Gross Sales. This means the prospective Buyer is able to come into your Business during the Trial Period and observe the Sales Transactions. This is generally permitted under a Contract of Sale. Note: a Buyer is not permitted to interfere with the Business during this period.
If you have a Cash Register, this is a time when you should keep Til Tape records. If you don’t have a Cash Register, then you will need to keep other accurate records (e.g. “Day Book”) and substantiate this against Invoices/Receipts for Cost of Sales during the respective period. A prospective Buyer should be able to extrapolate from your Cost of Sales the amount of Gross Sales that should have been produced during the period against known Gross Profit Margins.
Nuts and bolts? If you expect more for your business, then be prepared to prove that the sales exist.
If you liked this Tutorial, please SHARE with others and we can bring you more great Tutorials. Likewise, if you have any burning topics you’d like us to cover, we welcome your suggestion. Just send us an email or message and we’ll take it on board.
DISCLAIMER
The information contained in this post is an opinion based on past experience. Do not take this as financial or legal advice.