Business Fraud and Dishonesty selling a business explained by bizology business brokers


It might be prudent to check on your housekeeping before a buyer does. It is downright embarrassing, let alone criminal when a buyer or the buyer's accountant points out allegations in your bookkeeping that appear to indicate that your bottom line profits are not what they 'could and should' have been.
When it happens, many times a seller's pride will get in the way of the sale. Even as the broker I have lost enough listings that I have learned to keep my big mouth shut when I see something wrong. It is usually easy for an outsider to see. Even easier for a trained spotter or mystery shopper.
If you have a partner or bookkeeper that handles everything for you, there are a few things you may want to consider or look for.
Whenever a person in charge of the records limits access to those records, it may be a 'red flag' denoting fraud.
The comment most often heard when this is discovered is "That guys was my trusted friend."
It can happen anywhere, at any time. Family, friends, partnerships, whatever.
I have seen a restaurant owner have his daily sales increase by $300 per day after his most trusted, eight year employee/manager got married and moved away.
Another customer with a chain of seventeen fast food pizza franchises was losing more than $10,000 a week. It went on for several months before being discovered by the CPA. This was a member of the family with a gambling problem.
Another was a nightclub losing $2,000 a night by an immediate family member.
A jewelry store customer had me go in as an undercover employee. He had lost thousands and his three key employees were the most trusted. I showed him the week spot and where to put up a camera. It turned out to be the one I least expected!
Here are a few 'red flags' you may want to watch for that could be an indication of fraud or employee dishonesty.
Excessive drinking or gambling
Refusing access to records
Rewriting records for 'neatness'
Coming into a 'sudden inheritance'
Skipping vacations
Overriding internal controls
Attempts to dodge or direct an internal audit
Working regular overtime
Carrying excessive cash
Bouncing personal checks
Turning down promotions
Maintaining a high lifestyle
Has check-signing authority
Intimidates staff and other co-workers
Unusually high volume of product returns, damaged goods or promo's
Payroll and other expense increases without a corresponding sales increase
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