War Story: Under The Table: Reducing Staff to Boost EBITDA

by a professional from Harvard University - Harvard Business School

1 year ago

My clients were looking at a deal that would hopefully give them both the opportunity to retire. During diligence, I became suspicious of labor costs. The seller had recently laid off staff, but revenue was the same. Was EBITDA being manipulated? 
Find out what happened and learn how to protect yourself: https://www.guardianduediligence.com/blog/war-story-under-the-table-reducing-staff-to-boost-ebitda

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professional from Harvard University - Harvard Business School

^Searchfunder member‌ once a seller does cash payments, it opens up the possibility of way more cash payments than they state. And you cannot track cash as it does not happen where a $100 ATM withdrawal happens and then Todd gets paid that day. The cash is tricky to track. However, I have found ways during diligence/QoE to capture and measure cash payments if they're the same month-to-month and get some comfort.

1 year ago | like reply | 0 likes

searcher from University of Massachusetts Amherst - Isenberg School of Management

Good story, ^Searchfunder member‌, and timely as I'm looking at a business with substantial declines in expenses across several categories. I have similarly brief explanations via the broker: "Staff review carried out with significant efficiencies achieved".

It sounds like you were unable to verify the extent of those cash payments. Presumably they didn't come from the business' bank accounts? Let me know if you found a way.

1 year ago | like reply | 0 likes

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