My mind wandered today onto a company I worked with years ago.  They
had always done business in the “gray” area.  Employees were paid in
“green” to avoid any record of their earnings (to avoid a tax
consequence.)  They were hired regardless of their immigration status
(presumably so they would be more interested in accepting cash for
their work.)  In another business, expenses were inflated (again, to
avoid tax consequences,) and earnings were under-reported (for the same
reason.)

Doing business this way takes a very short view of things.  I’ll
grant you, it may “help” your business in the short run, but it will
kill you in the long run.  What happens when you want to sell your
business and you haven’t reported things properly?  When the buyer
demands audited financials to make the transaction, all your shady
dealings will be brought into the open.  And even if they weren’t, your
business will be worth less because of the way you’ve over-reported
expenses and under-reported earnings.  Not to mention what might happen
with an IRS audit (which can occur for whatever reason.)

I’ve heard people say this isn’t a problem if you never intend to
sell your business.  Hmmmm?!?  What about a disgruntled employee who
wants to cause you pain and embarrassment in the community?  Simply
uncovering your “scandalous” business practices will have a dramatic
negative impact on your business.

Here’s what I’ve learned in a career  working with businesses with
diverse ways of handling things.  It’s like speeding on the highway.  I
leave the mountain and drive to the valley two or three days per week. 
It’s a 90 mile trip each way, that takes an hour and a half.  If I
increase my speed from the legal 65 to, say, 75 I’m going to save about
10 minutes.  What do I risk to save 10 minutes?  Oh, about $120 (which
I could afford,)  but what about the stress of looking for cops and
hitting the brakes every time I see one.  For me, it’s not worth it.  I
set the cruise on 65 and drive completely worry-free (at least as it
relates to the police.)

It’s the same in business.  When you do business in a completely
above board way, you have nothing to hide and nothing to fear.  You’re
safe and secure relative to disgruntled employees and rogue IRS
agents.  Walking the razor’s edge may be good for getting the
adrenaline flowing, but it is no way to do business.  You have enough
to worry about, just making your business grow.  You don’t have enough
time or energy to worry about who’s going to find out about
questionable business practices.  Do yourself a favor and pick a side. 
Don’t walk the razor’s edge.