Giving Diligence Its Due

In the world of sales and acquisitions, small business owners shouldn't be like an impressionable child offered candy by a stranger -- they need to avoid the temptation to jump at tempting business confections.

Eugene Ferraro, CEO and founder of Business Controls Inc., a customized research and due diligence service, relates the story of starry-eyed investors who accepted an unusually large offer for their business without properly looking into the buyer's background.

The acquiring company -- which turned out to be made up of organized criminals -- sold off the inventory on the black market, didn't pay company bills and eventually bankrupted the business.

"[Buyers can] build great trust and sound like Harvard MBA's," says Ferraro, but that doesn't mean they will be good for the company you may have spent a lifetime building.

Richard Parker, founder of business buyer resource center Diomo Corporation, and author of seven how-to guides on buying a business, realized how many people don't address this most critical stage of the buying process effectively.

In the small-business world, where many can't afford a due diligence team, advice from the likes of Parker and Ferraro is proving very profitable.

"Due diligence has seeped into the business lexicon," says Ferraro. "It's not like the days of yore when [companies] sent in accountants to make sure column 'A' adds up."

The idea is to organize everything you need so you can hit the ground running when the due diligence clock begins, says Parker. Also, be sure to review the documentation first. "Chances are if they don't make sense to you, they won't make sense to your accountant," explains Parker, who has purchased 10 small businesses since 1990.

Sellers and intermediaries will generally push for the shortest due diligence period possible, so as Parker advises, don't be a pushover. Allow an average of 20 days for the whole process.