Do The Due Diligence

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What is Due Diligence? Statistics show that nine out of ten people who begin the search to buy a business never actually complete their transaction.


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Do The Due Diligence What is Due Diligence Statistics show that nine out of ten people who begin the search to buy a business never actually complete their transaction. While there are many contributions to this one of the biggest reasons buyers back out is because of the fear of uncertainty. If one feels that they do not know the company completely through and through and has not had the facts checked out they will not be comfortable with completing the transaction. Performing these verifications is known as performing “due diligence”. Therefore due diligence is one of the most important steps in the buying process. Some specific things sought out during due diligence are the strengths and weaknesses growth opportunities and competition the industry marketing suppliers and financial history. When Does Due Diligence Initiate Once a buyer becomes interested in a business the due diligence process is started. Due diligence basically involves the collection and verification of information. This process can take many hours of hard investigative labor and it is easy to overlook things if one is not familiar with performing due diligence. If the job is not done flawlessly the transaction may not close. The importance of embarking on due diligence as soon as possible is hard to express. The buyer needs to always be asking questions to the seller and the seller must be prepared to answer them. Business brokers know what questions to ask and what to look out for they also answer questions from the seller’s side. Having a broker take care of these things for you will save you a lot of time and money in the long run. What is this about a Due Diligence Period I thought we were already doing that In most if not all business transactions there is a period in which both parties come to an agreement that they want to move towards a deal. This ensues a period of time dedicated to due diligence where the buyer wants to confirm everything that the seller has claimed. During this time there is a scrutinizing financial review so it is important that a seller gets all of their facts straight beforehand. Take Your Time Make sure that both parties take their time during the due diligence process. Don’t let anyone bully you into a short inspection period they may be hiding something. Both parties should agree on a due diligence period that will let one complete a thorough investigation without wasting time. Generally Due Diligence periods will last 10-30 days.

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Be Prepared Before embarking on the Due Diligence period the buyer-side should have a list of all of the materials needed to complete their investigation. Surprise Expect the unexpected. Well not so much the unexpected but do try to remember that the seller is still a human and that small mistakes are normal. When the buyer comes across an inconsistency they should get clarification and try to weigh the options. However a large inconsistency or even a large amount of small inconsistencies will raise a red flag and the buyer will probably choose to seek out other options such as renegotiation or they may walk away from the deal altogether. Business brokers are experienced in Due Diligence. How well Due Diligence is handled will decide whether the transaction closes or not. Make the Decision Easy The seller side is responsible for making the buyer comfortable in completing the transaction. Trust professionalism and experience are key to closing the deal. If Due Diligence is handled wisely the decision to finalize the agreement is the easy part

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