A dishonest business owner discovers the domino effect … the hard way.
Early in my career I was selling a mid-sized restaurant in a shopping mall. It was a nice restaurant, family style, licensed, table seating of a hundred and twenty with ten bar stools. The statements showed a reasonable profit, not great, but reasonable. Food costs seemed a bit high. So did the labour costs. We found a buyer who was preparing an offer and wanted to see the business one more time before he finalized his offer.
We arrived at the restaurant about nine-thirty on a Tuesday morning to find the restaurant closed and the bailiff ’s notice on the door.
Further investigation revealed that two tax inspectors had been casing the business for about six weeks. One had breakfast at the restaurant every morning and the other lunch. During that time, they had befriended the owner and watched his activities carefully. They noted the average meal ticket size and the average number of customers daily.
They calculated that the owner had been under-reporting his revenue by about $2,000 per week. That’s over $100,000 per year. They assessed him approximately $100,000 for taxes not paid over the past three years and an additional $100,000 in penalties. A total of $200,000.
However, things did not stop there. The owner complained to anyone who would listen. The shopping centre owners got wind of what had happened. They were to be paid percentage rent and they had not been paid their 8% on many hundreds of thousands of dollars. They cancelled the lease and seized the equipment.
I did not complete that sale.