Thread: I think I got screwed

The business I bought two and a half years ago has never lived up to the financials I received and had reviewed by my CPA at the time and the lender. A month ago I noticed an anomaly in Quickbooks and sent the current file as well as a file that "wasn't used" by the business broker to determine the business value and a file that supposedly was to my CPA. I've since learned that the office manager/bookkeeper has made numerous basic mistakes in the current file and the original file was such a mess that the CPA was having a hard time making any sense of it and questioned how a business broker who is not an experienced CPA could generate the reports that he generated. The business broker's work also comes with a $5000 fine in Oregon since he isn't a licensed CPA. I also learned that my office manager snoops in my computer as she must have seen an email between myself and my CPA because out of the blue she sent a nasty email to my CPA, myself, as well as the seller's book keeper (probably to tip him off). Depending on what additional information my CPA finds as he further examines the original files, It looks like I'll be filing a pretty large lawsuit early next year and firing an incompetent possibly dishonest office manager.

This business looked very good on paper to the point of lenders even commenting on how strong it was...

Oh, she is definitely going. I've disliked her for some time and this is just the topping on the cake. I'm just waiting to see what the depth of her involvement is so if there is legal action, either civil or criminal she doesn't completely see it coming and run. It would also be helpful to have something bad and concrete against her as a rebuttal if she chooses to bad mouth me to customers which based on her personality is a strong possibility. She doesn't have access to any bank accounts and I sign all of the checks.

Thanks for the sympathy. The last couple of years have been hell.

Positive thing here is that you noticed the error and currently working to rectify it before it gets any worse.

did you see their tax returns? If so, was the business valued based on what is stated on the tax returns?

Originally Posted by David

I'm assuming it was a small business which wasn't cost effective to service an auditor prior to purchase. Lesson learnt, I hope you are able to take legal action against the mortgage broker and employees.

I did have my CPA at the time review the financials and he didn't see anything that bothered him but thinking back, I don't think he spent much time with it.

Originally Posted by darkjediii

did you see their tax returns? If so, was the business valued based on what is stated on the tax returns?

I did see the tax returns as did my CPA. There had been quite a bit of maneuvering to avoid taxes so it was difficult to match the returns to the financials. The documents the business broker created supposedly cleared it up and once again the CPA didn't say anything.

Originally Posted by WildFlower

Boy I just got out of a 3 year court battle... sucked up too much of my life.. but, I had to do it or I would have been married forever! Not sure if you can avoid it.... weigh that because it more than likely will drag out. ESPECIALLY if there are corrupt people involved. Shady attorneys know that all they have to do is try and bog you down with paperwork, lies, and postpone court dates. I was forced to spend 60+ hours a week on the court paperwork.. because I had no option. I'm moving forward now... finally. Now I understand how a lawsuit can suck up your life and time... a lesson I would have rather not known! AND it didn't help he was a shady attorney himself! sigh... won't be doing that again!!! LOL I don't date attorneys! LOL

Fortunately, I asked the loan officer when purchasing the business what they would do if it turned out that the information provided by the seller/business broker was incorrect or fraudulent and was told that they would go after the money themselves. The legal department of Wells Fargo would be far more frightening than the $150/hr attorney I would hire.

I've gone back to my original CPA who is very competent. At the time I was using my Mom's CPA as we were going through my Dad's estate and it was easier to use one CPA due to the complexity. I was also able to get Mom to switch to him too.

I agree, and if push comes to shove, maybe the IRS will find out...

It's also possible that the economy destroyed the business. I've seen businesses making 6 figure+ net incomes (with legit tax returns) from previous years go out of business in 1 year because of the economy or other factors.

I'm not sure that Wells Fargo will really take any action in going after the person who sold you the business. It's really your job to conduct due dilligence for business acquisition.

If they go after anyone if the loan is in default it would be you since you are the guarantor, not the person selling. did the previous owner hold a note or did you finance 100% from your own funds and bank loans?

If the previous owner intentionally provided false documentation to defraud you, it would be a separate case and you would have to pursue it in court for yourself. Also, the banks usually rely on the info on the business tax returns primarily, so the tax returns must have shown some decent net income??

I hate to say it but you are most likely going to find out that the burden to prove any issues within the books and records is your responsibility. That's what due diligence is all about.

When you go and file the suit the attorney will tell you that you have a case, take your retainer and begin to burn it up on nothing, "the legal dance." You will finally mediate the deal and if your lucky avoid the court room.

In the end you will spend a ton in lawyers fees for it to be a battle and a shitty experience all in all.

I know this because I sold a business once and the seller destroyed it. He then tried to do what your talking about and on it went. In the end I wiped the floor with him and his allegations. After the forensic cpas for both sides were paid to examine the books " huge fee" The judge ruled that it was the buyers responsibility to pin point issues under the due diligence period per your contract. The funny part is the forensic bean counters were so off track it made me laugh on the inside a bit.

Trying to prove that he committed fraud is a monster claim and its not black and white in the eyes of the law. It sucks but its true.

Not trying to shoot you down, just letting you know that Ive been there and its not fun.

So basically I'm just F%$#ed.

I just can't see how it can go from +$370k to -$130k in two years without any changes from me. Hell, the seller is even still doing some part time estimating.

Hi White8,

I'm really sorry to hear that. You mentioned that your office manager might have snooped on your computer. I don't know if she still has access to your computer but you might be careful that she didn't install a keylogger. People can very vindictive when they get fired and might try to harm you later on even after they have left the building. Hope everything works out in the long run.

White8-

I'm in Oregon too and I heard a story from a close friend about something very similar recently.
Basically, the seller had cooked the books to a level that was very very hard to detect.

Eventually it got sorted out, but it WAS 3 years of hell for him. It was a very very scary lesson for me, as I'm starting the process of getting my business for sale.

I'm not an expert on this but here is what I got from him;
Find someone you can TRUST. Absolutely trust and who has some smarts, and run the entire scenario by them.
See if it passes their smell test.

If they think something is fishy too, then dive in.

It's possible the business cratered after you bought, it, but that seems pretty unlikely to have such a huge swing if you aren't doing anything differently.

This friend ended up training to be his own expert witness in court and saved himself big $$$.
He won in the end, but the seller didn't have any money to collect on, so it's sort of an empty victory.


Just be careful and have a good plan in place. It could get pretty emotional for you, especially if there was fraud on the sellers part. Keep your head on straight, dig in and get the job done.

Best regards, go get it figured out!

Originally Posted by WestCoast

White8-

I'm in Oregon too and I heard a story from a close friend about something very similar recently.
Basically, the seller had cooked the books to a level that was very very hard to detect.

Eventually it got sorted out, but it WAS 3 years of hell for him. It was a very very scary lesson for me, as I'm starting the process of getting my business for sale.

I'm not an expert on this but here is what I got from him;
Find someone you can TRUST. Absolutely trust and who has some smarts, and run the entire scenario by them.
See if it passes their smell test.

If they think something is fishy too, then dive in.

It's possible the business cratered after you bought, it, but that seems pretty unlikely to have such a huge swing if you aren't doing anything differently.

This friend ended up training to be his own expert witness in court and saved himself big $$$.
He won in the end, but the seller didn't have any money to collect on, so it's sort of an empty victory.


Just be careful and have a good plan in place. It could get pretty emotional for you, especially if there was fraud on the sellers part. Keep your head on straight, dig in and get the job done.

Best regards, go get it figured out!

Thanks for the reply. I have my CPA working on it and plan to try to go from the angle that the broker cooked the data to make the business look much better than it was. When I showed the office manager his spreadsheets several months ago she said that it wasn't accurate. Hopefully he or Prudential carries good insurance.

I don't suppose you have the name of the attorney your friend used?

Regards