Buyers of businesses for sale – be cautious.

March 26, 2010

Today I was speaking to a gentleman looking for a business to buy.  He was lamenting his experience of having to dig out the problems during due diligence in case after case.  Then walking away from the deal because it was not as it originally appeared.  On the one hand he was apologizing for all of his questions but knowing that he had to ask.

A business broker typically appraises the business on the items they receive from the owner.  The better the broker is at asking for information, the more likely their package will reveal a level of reality.  However, the buyer should not take that information at face value.  Even tax returns can be incorrect.

As examples of things that might not be reveled in an initial marketing package and could be positive or negative for the buyer:

1)  The degree to which the seller is using the business to write off personal items.

2)  The payments under the table to the help or vendors.

3)  Inventory that has been over or understated.

4)  Stated receipts do not match the receipts reported for taxes.

5)  Claims on equipment and other property.

6)  Unpaid taxes.

These are only a few.  Do your due diligence.

For easily understood overview of due diligence go to:  http://www.astutediligence.com/Diligence_Basics.htm#priority

And from another source, a list:  http://smallbusiness.findlaw.com/business-forms-contracts/be3_8_1.html

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