Seller misrepresentation

January 20, 2026

by a searcher from Florida State University in Leesburg, FL, USA

Hi all, I bought a service business a little over a year ago. Turns out the seller may have misrepresented their earnings. I found out after closing that they paid overtime in cash and may have represented those cash withdrawals as part of their SDE, basically calling these cash withdrawals something else. The previous owner freely admitted to paying in cash for overtime and even suggested I do the same, despite the fact that it is illegal. The business is not as profitable as advertised and I believe I have overpaid for the business in part because of this misrepresentation. Anyone have experience with dealing with this kind of fraud? What kind of legal recourse might I have? It’s tricky since technically the owner is still available by phone call regarding the business but they are nearly 100% phased out otherwise. Essentially, all that is asked of the previous owner at this point is if an old employee comes back for a job, whether they are worth considering for employment, questions like that. However, the business location is rented from the seller. Appreciate any advice you might have and thank you.

Reply by a professional
from Brigham Young University in Calgary, AB, Canada

From the sounds of the post, you should dig into this and go from 'may have' to 'they did'. You don't want to make accusations without knowing 100% how the accounting worked. Plausible this could be recorded already in the books just not where it should be. Also odd they would do this because unless their personal tax rate is lower than FICA it doesn't make sense why they would claim personal income versus taking a business deduction. So most likely the seller would have only done this for a limited amount of time, say year before the sale to increase the multiple. Looking at the historical record you should see the drop off. Feel free to shoot me a DM if you want to chat through it further.

Reply by an intermediary
from Metropolitan State University in Denver, CO, USA

Yes you may have legal recourse. But is it worth it? Anyone has the right and ability to seek compensatory damages/sue for virtually any justifiable or unjustifiable reason. All kinds of factors will come into play whether that will be successful or not, and what the resulting effort and repercussions may be for taking such action. Depending on reliance on the location, you may also be entitled to release from the lease. Way to many variable to surmise with limited information. Nothing like exploring risks and unintended consequences of actions/inactions. If the business is successful, it may be best to take the hit and make it yours. If not, it may be worth action. Best of success!

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