How to Verify Cash Income

[Arminius]

I am currently in negotiations to purchase an existing wash. 6 ss bays and one ww razor. The owner claims that 10 percent of gross income never makes it into the books.

My question is about different ways to verify this. Is there a formula for how much soap, water, electricity it should be using per vehicle? What should I look for?

Thanks in advance for the help

 

[KleanRide]

The owner claims that 10 percent of gross income never makes it into the books.

Then he shouldn't have a problem with a 10% reduction in is asking price.

 

[Rfreeman]

No there is no way bc there are so many ways to alter those numbers its not even funny. As Klean said alrdy he/she should have no problem accepting a 10% discount on the price bc their info. isn't verified. Or you can make an offer based off of the number he is reporting and IF (that's a BIG IF) 10% they are not reporting well that's gravy.

 

[KleanRide]

This scenario will also pose a problem if you're planning to finance the purchase. Lenders these days have zero patience for funny books and unverifiable income. I wouldn't give that wash another sniff if he can't provide honest P&L's.

 

[bert79]

Definitely offer 10% less in that case. No question.

 

[washnvac]

That owner is a fool to tell you that. The IRS will be looking for him soon.

 

[tdlconceptsllc]

Your car count on the Razor will not lie unless he pushed lots & lots of free washes.

 

[Greg Pack]

If he is lying there is no recourse because you agreed to purchase at the false lower numbers. Figure your purchase on reported numbers and buy it if those numbers make sense. Any additional you see is icing on the cake.

 

[Arminius]

Thanks everyone for the tips. Could anyone give me some ballpark guesses, or share some numbers from your washes:

1)What percentage of total sales would you expect razor to make up?

2)What percentage of your total business is cash?

3)What percentage of your total business is credit card?

 

[MEP001]

Thanks everyone for the tips. Could anyone give me some ballpark guesses, or share some numbers from your washes:

1)What percentage of total sales would you expect razor to make up?

2)What percentage of your total business is cash?

3)What percentage of your total business is credit card?

None of that data you'll get from here will do you any good. Those numbers will vary a huge amount across the country based on demographics.

 

[Greg Pack]

As MEP says too many wild cards. I have two washes 15 miles away from each other and the CC/cash ratio and IBA/SS ratio are too different to see any trends or make any assumptions. You can not make assumptions based on the water bill either.

I'm overly pessimistic because I have seen too many people get screwed by lying sellers, although 10% understatement isn't that bad. Most try to say 25-35%. And I've fallen for it too from a person I thought I could trust. I even know of one situation where the seller was sly enough to start depositing money from his other businesses into the business he wanted to sell so he had what appeared to be bona fide income verifiable by bank statements. I think he got sued though when it was obvious that something was amiss. He was a rare type of con artist though. Anyway, be careful. The old rule of that 3-4X gross reported income is a good starting point for a purchase price (land included.)

Also, I don't mean to imply that the guy is a lying cheat of some sort, but most of us realize you won't get paid for something you don't report, and he should understand that.

 

[Waxman]

It's best to ignore the statement about ten percent unreported as far as purchase price. Banks loan on income reported on tax returns, so you should use the same figures to determine price. Stop trying to make a guess at the 'real numbers', because that's a fool's errand. VERIFY!