Business scam?

[borg007]

I’ve been out of work for a while and am planning on going into business for myself. I am considering buying a store that is into muscle building supplements.

Problem is they have two sets of books. The official books show net losses for all 3 years of operations. No cash sales are show in these books not even the owner’s salary or the employees salary. The other set shows the cash sales and a net profit of over 40000 for each the three years of operations.

Is this common for smaller business to have two sets of books or are they trying to scam me.

Also what are your thoughts on the industry?

 

[The Shake]

Its not common, but it happens.

These people are crooks - you should avoid them. If they have no problem defrauding the government, do you think you can trust that them yourself?

 

[HowardHughes]

I gotta agree with Shake on this one - don't walk away, sprint.

 

[ham2004]

Do yoursrlf and them both a favour... get an independent audit before you purchase anything

Remeber to use a CA or a CGA

 

[borg007]

Given all the issues with the two books the company has I was thinking on putting in a conditional offer in which I would physically verify their levels of sales over a one month period. This would allow me to make sure that they are generating the revenue they claim they are.

What do you think of this idea?

 

[Naughty Alex]

ham2004 audit is good but you really don't need to do an independent audit here, The Shake, got it all over.... these people are crooks.

 

[n_v]

Given all the issues with the two books the company has I was thinking on putting in a conditional offer in which I would physically verify their levels of sales over a one month period. This would allow me to make sure that they are generating the revenue they claim they are.

What do you think of this idea?

How do you know those numbers will hold for 12 months? Will they improve or decrease? What are the business' seasonal sales highs and sales lows? And how do you verify that?

 

[borg007]

How do you know those numbers will hold for 12 months? Will they improve or decrease? What are the business' seasonal sales highs and sales lows? And how do you verify that?

Seasonality is not an issue in the industry. But I can see where you are comming from

 

[papasmerf]

Given all the issues with the two books the company has I was thinking on putting in a conditional offer in which I would physically verify their levels of sales over a one month period. This would allow me to make sure that they are generating the revenue they claim they are.

What do you think of this idea?

Based on the "real" books pick the slowest month to check

that might be DECEMBER.

 

[n_v]

Seasonality is not an issue in the industry. But I can see where you are comming from

There is a season for EVERY business.

 

[TheNiteHwk]

Why are they selling?

 

[borg007]

Why are they selling?

The lady who is selling is getting divorced and she also has a new born to look after thus taking away from her timeto run the business.

 

[n_v]

The lady who is selling is getting divorced and she also has a new born to look after thus taking away from her timeto run the business.

Getting divorced should give her more time .. I mean gives her something to do.

 

[borg007]

See I’m a pretty entrepreneurial guy and have sufficient marketing know-how to sell pretty much anything. The problem is I am fairly new to Canada and don’t know where to find manufactures distributors or wholesalers that can provide me with products so that I can go into business.

If anyone knows of any list where I can find suppliers and wholesalers please let me know. Also if you know of any business opportunities our there I am all ears. Feel free to PM me if you prefer.

Thanks

 

[n_v]

Depends what kind of industry you are talking about. Same as this health supplement place?

 

[PeppyLaPew]

The only reason to go to all the trouble of having two sets of books is to avoid paying
a) taxes
b) another party with a vested interest such as an ex-wife, an unknown investment partner or former owner holding their note

Two questions you should ask yourself
i) if you buy the business and not the assets any of these parties could make a claim against the business for back taxes or restated profits. Do you want this?
ii) If they are unscupulous enough to cheat the government or another party whats to prevent them from cheating you?

Run away
There are tons of businesses available for sale
Check out this website
www.cdnbx.com

If you make a mistake buying the wrong business you may never recover financially. Do it right, spend the $ for legal and financial help

 

[iam0234]

It is not uncommon for small businesses to keep two sets of books to avoid taxes, both income taxes but more so GST and PST. Avoidance of sales taxes alone is an extra margin of 15%, and it is hard cash.

Without seeing the two sets of records, it is hard to tell which is a truer representation of the financial affairs of the business. I suspect the truth lies somewhere between the two.

Actually working at the place for a month is not a bad idea. If the owner allows you to do it, at least, it is a sign that she is not against subjecting the business to some due diligence. More importantly, it allows you the opportunity to understand the business better; to assess if there is room for higher profitability with your own skill sets, etc. The point I’m trying to make is: even if the true profitability of the business is $40,000, it is not something one should jump into with both feet. Being the owner of a business is a lot of headache, risk and inhumane hours. The business must have substantial upward potential than $40,000, IMHO, before you should let emotion takes over your brain.

It is not difficult for an experienced financial person to look at the two books to tell you where the tricks are in each. Falling short of an audit, which could be expensive, it is probably worth your while to consult with a professional if you are serious about buying the business. If you want to do the assessment yourself, my advice is you start with examining the expenses of the set of record that shows a slight loss. Ascertain its cost of sales, understand its margin % and approximate its potential “true” sales, then compare the sales to the business’ purportedly “true” sales to see if it makes sense.

My 2-cents on the subject. Take it with a grain of salt. Good luck.

 

[Mr. K]

Walk, no RUN to the nearest exit...

You sound like you've had some experience before. There's the old saying: If it sounds too good to be true, than it probably is. Take all the advice you've gotten and stay away. Even if the business is a money-maker, the potential problems from the previous owner's business practices may come back to haunt YOU! Not worth the hassle - there's lots of other businesses out there.