False Pub Accounts (Barrel Dregs), a tale for the unwary business buyer
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Barrel-Dregs has been run for many years, we change all the identifiable details, but give you an insight as to many of the sharp or bad practices by a number of companies, in most cases they are just legal but morally unacceptable.
We have a number of Pub owning companies that we will not recommend, their actions have featured in Barrel-Dregs too many times, we did hope that by highlighting their antics they might change, but in Barrel-Dregs terms “Leopards do not change their spots, they cover them with more Mud.”
I had agreed to buy a Freehouse with good trading figures. I normally buy no hopers with no figures and rip them apart and start from scratch. My wife suggested that we actually buy one with decent figures, so that we don’t have to worry about where the next customer is coming from.
The pub looked super but was always empty and I got very suspicious, I insisted that my Accountant went through the accounts with a fine tooth combe because I didn’t believe the figures. The vendors accountant said that the percentages were spot on, the VAT and inland revenue had been paid, the so called barrellage at that time was 182 brewers barrels (36 gals) and I was just being very twitchy.
We took over and the so called business was minimal, I phoned his old beer supplier, fortunately he only had one and asked for the barrellage figures for rating assessment in those days, previously they would not give me the figures, but for rating they had to, it was 72 brewers barrels, I then realised what had been going on. He had been inflating his till taking by £500.00 plus a week which would give an increased valuation of the freehold of £37,500 per £25,000 on the turnover, He had been buying stock and selling it for cash around the district, so that the stock purchases against sales and percentages were correct, paid the VAT and sold me the pub at an inflated price with no business.
His accountant pleaded total ignorance, the licensee changed addresses by the month, we put the Police in and eventually located him about eight months later. My Solicitor said did I want to take him to court, which I did and he asked how we were doing, I told him better than his figures. He told me that if we went to court, I would in all probability get an award of so much a week which I would have to pursue every time he defaulted. The judges view would have been after seeking legal advice that we had not lost anything, since our turnover by then was about four times his theoretical turnover, if we had gone bust we might have had a better case, but the obvious is that you haven’t the money to go to court if you are bankrupt.
The moral of this story check everything with a fine tooth combe, one silly point was that he did not have enough cutlery to do the business that he was talking about, when I finally checked it, loads of plates but nothing to eat the food with.