How do you value a company where the owner is lying about income?
In a carwash; most payments are made in cash, and possibly not recorded. We had to look past the official sales records to make the right valuation.
A cheated partner:
Hank had entered a partnership with his long time friend Cherry roughly ten years ago. They felt they could compete in the car wash industry, a thought supported by great initial success.
With time, Hank had removed himself from the operations of the company to focus on his family. The amount of earnings he was getting; however, had slowly dropped over the past few years. Was Cherry cheating him?
Hank called us to get an accurate valuation.
We quickly realized that Hank was right. Income was being underreported. Cherry, however, was accurately reporting how much money was being spent on expenses like soap to wash the cars.
We carefully worked backwards to derive from the expenses how many vehicles were being serviced per month. Once we figured that out, it was relatively easy to calculate income.
With our valuation, Hank was able to get fair compensation.