By Willard Michlin – CBB, CPA, CFE
How many attorneys have you seen that have successfully represented themselves in court? How many doctors have you seen successfully conduct an operation on themselves?
Just as with doctors and lawyers, doing a business review or audit by yourself, in order to save a buck, does not work.
There is an old saying that applies here, “There is nothing more expensive than cheap.”
When doing due diligence alone, without any assistance, you’re allowing emotions to play a big part, eventually leading to a bad decision. I have actually seen buyers not hire someone to help them entirely because they didn’t want to have their dream killed by the truth. Of course, later they wished they had gotten help, because that dream business they imagined in their head turned out to be nothing like the business they purchased.
You can do a large portion of the due diligence yourself, depending on your background, but you should never try to do it solely on your own. Let’s go over a few of the reasons:
- People hire a CPA or other qualified person because they need an expert opinion, and the more experience the expert has (not knowledge, but experience), the more valuable he is to you.
- Everyone needs someone to bounce ideas off of. And everyone looks at the same information from a different perspective. Life experiences and different educations give us multiple points of view. If you are in a partnership where you and your partners always agree, you have one partner too many.
- You always end up with a better deal when the final approval is subject to a second person’s approval. When I bought businesses for myself, and had my Vice President approve my actions, I always found things about the business that allowed me to make a better deal.
Due Diligence for a small business can cost $500-$5,000. If the purchase price is $500,000, that is just one percent of the purchase price. And you’re using it to give you some assurance that you are getting what you think you are paying for. Can you buy any type of business insurance for only 1% of the face on the policy?
Willard Michlin is a CPA, and Due Diligence and Business Evaluation Advisor. He has published many articles and is in demand as a public speaker in the Southern California business community. You can write to Willard at Willard@EvaluateABusiness.com and he will always answer your questions. He can also be contacted at his Seal Beach, California office by calling 805.428.2063. See other articles and information about his services at: Business Buying Services
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