The intangible that connects the right business to the right price is due diligence. This refers to the period of time during that the buyer is free to examine the seller and their business. Due diligence also refers to the efforts made by the seller to evaluate the buyer’s financial statement and resume – the latter is particularly important if the seller will be carrying a note from the buyer or if the seller is to remain on a long-term lease assigned to the buyer.  

 

Due diligence starts when the buyer is introduced to a given business with the signing of a non-disclosure (AKA confidentiality agreement) form. Take note that any thorough review of the books, records and operations such as bank deposits and sales reports will be delayed until such time as there is an agreement on price and terms – signed purchase agreement.  

 

The accepted offer by the buyer is normally contingent upon several events: particularly, satisfactory review of the subject company’s books and records. In other words, the earnest deposit from the buyer will not normally be at risk until the buyer is satisfied that the presented business sales and cash flow by the seller are indeed what was represented.