"Cheating" Detective

In the 2016-2018 timeframe Private Equity folks asked me to evaluate a business that they felt was "cheating".

What does "cheating" mean?

It means the brand was somehow boosting net sales in a manner that wasn't ideal for the future of the business.

When I reviewed ad spend, I didn't see anything unusual.

8,500 lines of code later, my detective work paid off.

• 13-24 Months Ago = 15% (numbers disguised here) of sales from discounted/promo items.
• Past Year = 55% (percentage disguised here) of sales from discounted/promo items.

In other words, Management decided to make it look like the business was surging, when in reality Management was cheating.

At this time, Management had not provided Private Equity with their p&l ... you can't hide from the p&l of course ... discounting leads to lower gross margins, which would have set off alarm bells.

If you are selling your business or rebuilding your business, best not to cheat. Do the hard work.