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Buy Y our Own Business

Step 7: Do Your Own Due Diligence

In this stage, you will have access to all of the company’s books and records.
It’s also the last step when you can back out of the deal legally without any
obligations to the seller, and not forfeit any deposits. The due diligence clause
in the contract must clearly state that you can retract your offer “at your
sole and absolute discretion, for any reason whatsoever” and get the imme-
diate return of any deposit with no further obligation to the seller. Make sure
your attorney drafts “bulletproof” language on this point.
Allow yourself enough time to complete this phase, and don’t restrict

yourself to just the financials. Be wary of any seller or intermediary who
pushes for a very limited period.
You must thoroughly investigate the fi nancials, the assets, the competition,
customers, employees, sales and marketing strategy, the systems in place, all con-
tracts, the suppliers, and legal and corporate issues. Everything you need to do in

these categories adds up to a 200-point checklist that you can find in the chapter,
“Due Diligence,” in my book, The Art of Buying a Business . Here are just a few:

• Have your attorney review all legal issues and liabilities, and verify any
copyrights, trademarks, and patents.
• Instruct a CPA experienced with the industry to assemble a checklist

of all financial documents, double check bank and fi nancial statements,
and perform a mini audit.
• Learn how the company generates its sales.
• Who are the customers, and will they continue to buy from you?
• Review all contracts, and, if there are any major clients representing
more than 10 percent of the business, either meet with them before
closing, or have a provision in the contract to protect you in case you
lose them after you take over.
• Who are the competitors? How much of a threat are they?
• Hire an industry consultant to appraise equipment and estimate
replacement costs.
• Are the systems adequate? If not, at what cost can they be replaced
and/or implemented?

Dealing with Problems

Chances are you’ll find some problems, but don’t run to the seller over every
little every issue. Build your case and wait. Every business has secrets and

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