Today, let's tackle a crucial question from Bob, who experienced the challenges of insufficient due diligence time when buying a business. https://youtu.be/qJSlRfg62Ik
Bob rightly points out that during the initial stages of negotiations, everyone seems amicable and forthcoming with information. However, it's when you delve deeper into discussions with key staff and suppliers that the real insights emerge. So, the burning question is: How long should due diligence last when you're looking to acquire a business?
In a previous video, I shared the story of Jay, who found himself in a bind due to an impractical 10-day due diligence period. Buying a business involves numerous intricate components – employees, suppliers, receivables, vendors, customers, and more. Rushing through this process can lead to oversight and potential pitfalls. Watch the video here: https://youtu.be/-CF-b7QdctQ
During my time as a business broker, I adopted a unique approach to due diligence. Instead of limiting it to a set timeframe, I structured deals where due diligence began upon acceptance and continued until closing.
This way, the buyer could scrutinize every aspect of the business without feeling rushed.
Now, from a seller's perspective, the idea of an extended due diligence period might seem daunting. To address this concern, we often implemented a milestone or benchmark within the process.
For example, when the buyer wanted to engage with key employees or suppliers, breaking confidentiality, we made the deposit non-refundable.
This strategic move protected the seller's interests and ensured that buyers were committed before delving into sensitive discussions. By making the deposit non-refundable at a crucial stage, we encouraged serious offers and filtered out less committed buyers.
The key takeaway here is that due diligence should be thorough and comprehensive. Every business is unique, and setting arbitrary deadlines can jeopardize the quality of the investigation. Unlike real estate, businesses are complex entities with multifaceted operations that require time for a meticulous examination.
If you're buying a business, avoid getting locked into an unrealistically short due diligence period. From a seller's standpoint, it's essential to strike a balance between buyer confidence and protecting your business's confidentiality until the right stage in the process.
Remember, due diligence is your safeguard against a bad deal. If you're serious about buying a business, check out my comprehensive online program, "Business Buyer Advantage,". It's your roadmap to navigating the complexities of business acquisition and ensuring a successful deal.
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Cheers!
David C Barnett
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