A Partner of a firm engaged in the catering business, for more than a decade approached me and said they have been doing good business, but in spite of that, they were not able to hoard anything to buy properties. So they want me to help them out with this issue.
I made an initial study to be acquainted with their existing system and business policies. Usually, the catering business needs a lot of assets like utensils, etc. which can also be hired on a contract basis depending upon their usage. If the frequency of usage of these items is high, then better to go for an outright purchase. In this firm, their usage is almost daily, but they hired all these items from an outside vendor.
I discussed this with the Manager who was in charge of the array of these items, at the time of requirement. He at the outset denied and repudiates my suggestion. Initially, I thought it was due to a sense of self, but later when I was scrutinizing the vouchers, I saw there were many conveyance reimbursements given to that manager for travelling from office to the place, from where they hired the kitchen items and also huge transport charges were accounted for carriage of these items from owners place to work spot. This does not have any logic, because when these items are required on daily basis, returning the items after usage and taking them back again does not arise. Later when I saw their work acceptance schedule, did not find any reason for returning the items. And to know the terms and conditions of the contract, I asked for an agreement, but, there was no agreement, so I tried to contact the vendor over the phone by getting his number from the vendor invoice to my revelation there were no such transactions turned out between the vendor and firm. Immediately I was urged to verify the bank statements to know where the payments have been made. All those payments were made to “X Private Ltd”.Then I haul out the financials and other incorporation details of X Pvt Ltd from the ROC website (www.mca.gov.in), the directors of this company are another partner of this firm and his spouse. This company was doing catering business as well as giving the kitchen items on rental basis. This firm has paid Rs.15, 00,000/- as a security deposit to this company for hiring these items, with which that partner started this company and bought these assets and given back the same on a rental basis.
After identifying this deception, I reported to that partner, he immediately started to initiate legal action against him, but I suggested he behave like he is unacquainted with his partner’s deception and to register their brand name in his name and then to ask his partner to stop hiring such items and suggest for outright purchase. I also added to be very vigilant on his partner’s activities to avoid further financial loss and soon to take over the entire business in his name. He initially argued, later agreed to my suggestion and registered their brand in his personal name.