Question:

The seller tells me there’s about $25,000 a year in cash business. How can I verify this? The seller is insisting it exists and he is factoring it into the price. I’d like to believe him but what happens if it’s less than that in actuality?

Answer:

If they can’t prove it – you cannot pay for it. End of story!

Here’s the approach: tell the seller that you’ll agree to factor in the cash to the purchase after you’ve had a chance to run the business for a year and see how much it is.

The seller will typically say: “how can I possibly know if you’re going to tell me exactly how much you take in and how can I ever verify the amount?” To which you’ll reply: “that’s exactly my point”.

This is always a bothersome issue for me. The seller has effectively avoided taxes on all this money year after year.

Yet, here they are again expecting to get a second bonus for it..that’s craziness.

You cannot have it both ways Mr. Seller. No proof. No money. Sorry!