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Home > Tools and Resources > Buying a Business > Small Business Due Diligence: What Buyers Need to Know

Small Business Due Diligence: What Buyers Need to Know

By Andy Cagnetta | Transworld Business Advisors
Contact Andy Cagnetta | Visit Website | About The Author

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When you finally have an offer accepted and you are ready to dive into due diligence, the easy part is knowing to find the "money". My advice is always to hire a good CPA that knows how to perform a small business due diligence. Often times you have to dig for the money — and small business accountants have often seen it all.

But what else should you be concerned about? What else should you look for in your due diligence?

Here's a few items I would look out for:

  1. Seller remorse. If the seller is hesitant to sell, that makes me feel good. If the seller loves the business and will miss it, that gives me a reason to feel good about a business's future.
  2. The future! It is all about the future income, not the past. So start looking for things that could interrupt the money flow. Road construction, business model changes (think UBER), key employees leaving or retiring, landlord change or building remodels, anchor tenants leaving, customers leaving or going out of business.
  3. The internet. Scour the internet for good or bad things. Do not listen to one bad review or "squeaky wheels". A business cannot make everyone happy, but look for possible huge issues like contingent liabilities or future litigation or business ending legislation etc.
  4. Community involvement. How is the business or owner perceived in their local community? Are they "do-gooders"? It is easier to open friendly doors than cross burnt bridges.
  5. Your assets not being currently used. What are you bringing to the table? Money, youth, social media skills or other marketing knowhow, business acumen? I love new blood in businesses, and usually there is a ton of upside out there. There are more bad business owners than bad businesses.
  6. Owner's work ethic. Is the owner a superstar overachiever? Or, have they ignored the business for the last few years. I like the latter. If a business is doing well despite the owner's effort — much more upside.
  7. Under the radar? I love businesses that no one knows about. Or, little utilized profit centers. Or, under marketed services. Or, easy acquisition targets. Even a bad business could be turned around with great connections or revamped websites. Look for opportunities.
  8. Buyer remorse. You will be scared, you will feel like you want to puke at times, you will doubt the purchase, you will lose sleep. You need to ignore this.
  9. Gut feeling. You need to ignore remorse but embrace your gut. If the business model is flawed or not executable by you, you need to heed your instinct.
  10. No scary monsters? If there are no deal breakers. No unamenable liabilities. No real huge down side? Then take the risk! A good/established business model will survive even if you hate it. Just run it for a while and sell it! Some of the most valuable lessons I use today are from my failed and semi successful business venture attempts!

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About The Author
Andy Cagnetta owns and operates Transworld Business Advisors. He joined the company as a sales associate and later purchased it. Transworld is an international franchise business and franchise brokerage, with thousands of businesses for sale and 50+ franchisees in the US and four countries.

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