Due Diligence 101 or What you Don't Know Can Kill You!
Author: Willard Michlin
This article is written as a general discussion on the subject of â€œDue Diligenceâ€. It is for informational purposes and not intended to
be a definitive guideline for your exact situation. You should consult the appropriate professionals with regard to your specific transaction
or situation. Further, this article is in no way advocating, suggesting or implying that anyone engages in any type fraudulent activities
whatsoever. These are simply the things a buyer should be aware of when doing due diligence in buyer a business.
You spent months finding the right business. The seller says that you cannot go by what the tax return shows but the business is making a
lot of money, and he can prove it. Your inspection of the profit and loss statement shows that sales have been increasing slightly in the
last few years. Most important, and the best news of all is; the price is right! Does it sound too good to be true? I am sorry to tell you this,
it probably is.
I think it was Benjamin Franklin who said, â€œA fool and his money are soon parted.â€ Mr. Franklin must have known a lot of business
buyers. When buying appliances that break in a month, it costs you a few dollars. When you go to a swap meet and are cheated
because the solid gold watch is really gold plated, it costs you a few hundred bucks. When a used car salesman cheats you, by selling
you a lemon, where the speedometer has been turned back 100,000 miles, it costs you a few thousand dollars. Getting cheated buying a
business can cost you many thousands to hundreds of thousands of dollars. The only investment or purchase that I know of where you
can be cheated out of more money is in the area of real estate. Real Estate fraud can runs into the hundreds of millions of dollars and
does. You would be shocked at all the people between 1875 and 1950 who saw ads for prime real estate in Florida and bought swamp
land. What about prime Louisiana beach front with Alligators liv