The investigation process begins the moment a business becomes of interest to you. Your goal is to make certain that you uncover everything about any business BEFORE you buy it. You donï¿½t have to meet the seller or even visit the business for your research to begin. The Internet is an incredible tool that will allow you to investigate the business, the industry, the competition, the marketing, the suppliers, and on and on.
The importance of beginning your investigation early on cannot be emphasized strongly enough. This way, youï¿½ll position yourself to ask the proper questions to the seller. Once you progress to the stage of an accepted offer, you will commence the inspection or financial Due Diligence. This period usually lasts 10-30 days. This is the time when youï¿½ll have access to all of the companyï¿½s books and records.
Once you being looking at a particular business, youï¿½ll find a thousand things crossing your mind regarding the acquisition. Keep a notepad handy at all times and log your thoughts. Youï¿½ll have many thoughts about things ï¿½I need to check outï¿½. Write these all in one place. Donï¿½t trust your memory; these little things are the ones that can come back to haunt you down the road. Begin to put together your checklist of what you need to investigate and how youï¿½re going to do it, along with the materials you may need from the seller to accomplish it.
A couple of things to keep in mind:
Allow yourself enough time:
Many sellers and some brokers will press for a very short inspection period; sometimes just days. Donï¿½t get bullied into this - give yourself ample time to complete this part of the process. You should allow for, negotiate and not settle for less than a 20-business-day inspection/Due Diligence period.
Since youï¿½ll have some time restrictions (youï¿½ll only have x number of days per the contract), provide the seller with a listing of all of the materials required for you and/or your CPA to complete this exercise. No matter what youï¿½re told, do not begin the process until they have everything ready for you.
Dealing With Surprises:
Youï¿½ll probably find some surprises; donï¿½t panic, itï¿½s normal. Work through them. Get clarification. Build your case. Donï¿½t run to the seller or broker every time you find an inconsistency between what youï¿½ve seen versus what you were told. No business is perfect. The rule to follow is do not treat any incidents as catastrophes or any catastrophes as incidents. If you find a major problem, get your facts in order and you can then decide the appropriate action to be taken with the seller (i.e. renegotiation, walking from the deal, etc.).
According to industry statistics, nine out of ten people who begin the search to buy a business never complete a transaction. While there are many reasons for this dismal figure, a lot has to do with the inability of people to ï¿½pull the triggerï¿½. This gun-shy reaction is related specifically to uncertainty: if you have not gathered the right information or failed to investigate the business thoroughly, you will not be 100% certain of what to do. And so, youï¿½ll drop the project. Conversely, if you do a flawless job of investigating the business, and everything else adds up right, then making the final decision is simply one more step in the process!
About the Author Richard Parker is the author of How To Buy A Good Business At A Great Price ï¿½, the most widely used reference resource and strategy guide for buying a business. This comprehensive simple to follow guide contains 420 pages of expert tips, proven strategies and winning negotiating techniques. Mr. Parker has purchased ten small businesses in the past 14 years. As President and founder of Diomo Corporation - The Business Buyer Resource Center, his materials have helped thousands of prospective small business buyers realize their dream of business ownership (click here to read some of their stories). His programs are sold in over 50 countries. Available in hard copy or via immediate electronic download. To order a copy click here. Review the complete course outline.