What exactly is due diligence for buying a business?

Simply put, performing your due diligence means taking a highly scrutinizing look at the business you are considering purchasing regarding

• financial performance,
• inventory and assets,
• employees,
• how the business actually operates,
• who their customers are,
• how they get their customers
• supplier relationships and
• competition information.

Beyond just proving that the seller's financial information is accurate, this process allows you to dig into the company and find out how it works, where its strengths lie, what weaknesses it has and how you can or can't make a difference as the new owner.


Is due diligence the same for any business?

You will find out very quickly that how you conduct your due diligence for buying a particular type of business really depends on the industry the business is in.

For example, performing due diligence for buying a restaurant is not even close to due diligence for buying a laundromat. You will be laughed out the door if you ask for the wrong kind of documentation. Especially documentation that has no bearing on the particular business you are looking at.

Or worse, you will rely on information given to you that will almost certainly be inaccurate and cause you to completely botch the due diligence. This could lead to missing out on a great opportunity.


Do you need an attorney to perform due diligence?

Attorneys are expensive. They are also unnecessary for a majority of the due diligence process. Normally you would leave them out of the loop until the due diligence is over and you are ready to go to contract.

Sometimes though, when you suspect the business may have had some recent legal trouble or it is a complicated deal involving a lot of license transfers, you may want to get your lawyer in to do some legal research for you.


So what's next then?

Once you have completed your due diligence, it is time to decide to go through to the closing phase. This is otherwise known as "going to contract".

Sometimes this involves adjusting your asking price down if you have very valid reasons to do so such as assets that will need to be replaced or the seller has not significantly "proved" his numbers. This counter offer may end up shutting the whole deal down or the seller may make some kind of concession.

If the seller and you have a green light, it's off to the closing phase.


To Your Business Buying Success-

The Business Buying Guru

Don't Be Joe the Plumber- Naive is No Way to Buy a Business

Joe the Plumber- is he famous now, or infamous. Actually the question I have is whether or not he's actually even a plumber. For that matter, rumor has it that his boss isn't even a licensed plumber.

Anyway, the real reason for this post is to show you how NOT to go about buying a business whether or not it's your boss's business you want to buy from him/her or an entirely different one.

This Joe the Plumber guy probably thinks he can actually get a loan to buy the business. Not going to happen for several reasons including the odds are his boss keeps very bad records and the fact that Joe isn't even a licensed plumber trying to buyout his boss to become a 1 man show. Even with a plumbing license, he is immediately hindering his income because he will now be a 1 man show. Odds are he will end up over paying.

What's the point of doing that?

That said, at least he understands that he doesn't know enough about the business side to actually buy this business at this time. According to various interviews, he knows that being a plumber and operating the business are 2 different skills he needs unless he brings in a partner that is an actual business operations person. This is extremely important for any business buyer to grasp.

The bottom line is that Joe the Plumber and you have 1 thing in common: You both need to be completely prepared to buy a business from all angles before you even start looking.

To help you out, at least visit the business-buying-help.com site and go through each page. It's a great start. Then get on the tips list if you haven't done so already. Lastly, get the whole slew of easy to understand and use tools in the toolkit to have in your arsenal as you tackle your business buying endeavors.


To Your Business Buying Success-

The Business Buying Guru

Picking an Attorney to Help You Buy a Business

I was speaking at a conference last week and one of the main topics was buying and selling a business. While I was attending the speech of a fellow speaker, his guest speaker was explaining soup to nuts how the transaction started and ended.

One of the things brought up was the legal help and documentation he used. This is a very sore spot for me as someone that has been on both sides of a business purchase transaction for myself as well as for clients.

Unfortunately, the guest explaining how his business was purchased did exactly what I encourage people not to do. He was rather lucky in the end but only because it was a relatively simple transaction.

To see how others that do what I do feel about attorney roles and hiring one, I posed the question to the 2 speakers and to the guest as to their opinions regarding how to pick out an attorney for when the time comes to talk legalities.

The guest picked out a trusted friend that knew real estate deals and some basics on contracts. Wrong answer. The speakers, on the other hand, went along with my thought process, which is to find an attorney actually familiar with business purchase transactions and better yet transactions within your industry.

As I do, they felt that going to a trusted attorney or other business owner to find an experience lawyer in this field is a good idea, but even a simple transaction can turn into a nightmare when a less experienced lawyer starts to protect themselves more than protect you since they are diving into unknown waters.

As do I, they also feel that using an intermediary for both sides or an advisor/broker on both sides is the safest way to make sure any other person in the transaction (banks, lawyers, accountants) don't lose focus at the subject at hand. Namely, you want to buy the business and the seller wants to sell it to you. End of story.

The bottom line is this; this is a big and important transaction. Most entrepreneurs only buy and sell 1 business in their lifetime. Do you really want to go into it without professional help? Are you really going to try and save a few thousand dollars on something that if not done right can cost you tens or hundreds of thousands of dollars in loss?

Let's be serious here. A business buying transaction is best done with an educated buyer and the right professional help including attorneys, accountants and advisors/brokers. be a good buyer and buy a great business.

To Your Business Buying Success

The Business Buying Guru