How do I check a consignment store’s records of what each consignor is owed?
Ask for a report of every consignor with items sold, the split agreed and the amount paid and unpaid. Then test a few consignors against their own paperwork and the sales log. The unpaid balance belongs to other people, and it has to be settled or transferred clearly.
Consignment shops hold money that is not theirs. After a sale, a share belongs to the consignor, and until it is paid the shop is a kind of holder. Ask the seller to produce the consignor ledger, showing each person, each item, the sale date, the agreed split and any payments made. Then compare the total owing against the bank balance. A shortfall is a serious sign.
Test the records with a sample. Choose some consignors, ask for their agreements and match every sold item to the point-of-sale log. Look for items sold with no ledger entry, or entries with no sale. Ask how the shop handles unsold items, returns, damaged pieces and lost goods, and who decides when an item expires.
Think about what happens on the closing date. Unpaid balances and unsold consigned goods need to be handled in writing, and consignors may need to be told. Ask whether the shop has ever had a dispute with a consignor, and how it ended. Your lawyer should word the transfer. Your accountant should treat the owed amounts properly.
Key takeaways
- Obtain the full consignor ledger and compare the total owed to the bank balance.
- Sample consignors and match their sold items to the sales log.
- Ask how unsold, damaged and lost items are handled.
- Settle the transfer of balances and goods in the purchase agreement.
Related reading
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Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 02Business Development Bank of CanadaGovernmentWhat are the steps to buying a business?
- 03Business Development Bank of CanadaGovernmentWhat are financial statements?
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