Due Diligence

If you’re expecting to find a perfect business to buy, you had better adjust your thinking because it doesn’t exist. There are always going to be some issues. Of course, the goal is to uncover these before you buy the business, but that’s only part of the process. How you deal with them is more important.

Going into the due diligence phase, your strategy should be twofold:

First, to validate what has been represented. Second, to identify and address any potential problems that could severely impact the business after you take over.

Throughout the due diligence process, keep an active log of any issues that warrant further discussions with the seller.

Don’t run to them for every issue. Build your case. Renegotiation may, or may not be necessary. While you should not overlook anything; some points may not warrant a grand discussion relative to the big picture of getting a deal done. Also, keep in mind that you’re going to need the seller to train you after closing.

Learn how to separate incidents from catastrophes.

If you discover any huge problems then naturally, you may have to confront them immediately. Don’t attack the seller accusing them of not disclosing the truth. Attack the problem. However; before you confront the seller, think about all of the possible remedies and what you can possibly negotiate to solve the problem at hand.

Some issues may force you to walk from the deal but often, unless there has been gross misrepresentation, these matters can be resolved.

Just like the buyer, the seller has to properly prepare for due diligence. I was honored to participate in an article written by Annika Mengisen, a journalist with TheStreet.com. She did a splendid job discussing due diligence and some very interesting seller points. You should read the article at: http://www.thestreet.com/newsanalysis/smallbiz/103…

There’s a lot to be done during due diligence and a short period to accomplish it. Stay focused. It’s a crucial stage in the buying process. Sometimes deals will fall apart at this point and it can be upsetting, but it can be a blessing. Nevertheless, if you keep your cool, compile your arguments, and have solutions at hand, chances are you’ll get what you need because the seller doesn’t want to see the deal collapse at this point either. However; if things check out to your liking, then get the deal closed and get on with building your new business!


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