Many SMEs reading this are thinking I am crazy, as they often fund a better lifestyle with the cash sales in their business, which never enter the accounting system. The only loser is the tax man, so what harm is done?
The harm is to your own business and your wealth creation strategy. Let me explain. Firstly, we must reiterate that starting a business is not intended for the purpose of creating a salary for yourelf, but rather to create wealth for yourself. So how does stealing the cash sales destroy your wealth?
Firstly, by stealing the cash sales, you reduce your overall reportable gross profit, as your cost of sales is higher against lower sales. This naturally leads to a lower nett profit, which means a lower business valuation when selling the business, which means less wealth has been created. As an example if you are stealing 200000 per annum, a realistic PE on that amount would be 400000 when selling the business, and could be higher.
Often however, the owners steal all the profit and only breakeven each year, thereby creating no wealth to sell. They therefore remain locked into the business and cannot leave or sell, long after they should have retired. They always claim when trying to sell, "But I can prove how much I took". Would you believe a self confessed thief is being honest, especially when he is trying to sell you something?
Finally, it does not take your staff long too work out you are stealing from the business, and not much longer to work out how they can too!!!