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DUE DILIGENCE
Yes...my own experience of buying a small practice led me to include 'Due Diligence' in my book. [not published yet] All aspects of the business arena and a Balanced Scorecard are included.
I relied on the trust of the agent and the seller in part. From my own perspective,it involved little attention to prime-entry records and the macro-market. Finally, it ended in litigation when cash-flow became impeded. That is, when client income is less than cash receivables as described on the debtors list...I should have known better!
Due Diligence
Thank Charles for posting this useful advice - we worked together on a deal some time ago (I was your client), so I know from experience that you work in a very supportive manner and take the time to understand your client's needs.
To me, whether you are buying or selling, appointing a good professional adviser can pay dividends. It's important to ensure that you feel comfortable with the person you appoint, as rapport is the first step to trust - and when you trust your adviser, you give them the freedom to act as they need to on your behalf, which ultimately delivers better results for you. It can sometimes feel like a bit of a dance, but a good adviser will help you ensure that you know which points are worth sticking on, and the ones where a bit of compromise goes a long way.
The preparation of a due diligence file in advance makes it so much less stressful, there are some standard headings for the key paperwork you will need, and it will also highlight gaps in your paperwork and give you the time to identify a way forward. If you were the buyer, imagine how much more confidence you would place in your potential purchase if everything was neat and organised.
I'm interested to hear other people's experiences as well, I'm sure there will be some good tips and hints out there.
Emma Warren
Portfolio Directors Ltd
IP rights
I was a founder, and chairman of a software company between 1981 and 1993 (let us call it company A). That company under new management has recently been sold to a large Canadian group. However, I am sure that the buyer's due diligence was flawed. Not only did they never approach me for information on the IP rights - which are complex (some owned personally by me, some by academics at various universities, some by other consulting and software companies: I know 'where the bodies are buried'), but in informal contacts I have had with the new owners, they seem to be under the impression that they own all the IP rights. This is probably because the management of company A between 1993 and today has changed, and the IP paper trail has probably been shredded, even though this is a type of software with a very long 'shelf life'. However, an assertion of ownership without the evidence to support it is insufficient - and the buyer should not have accepted company A's assertions of ownership at face value. The due diligence process entailed failures on both sides. The buyer is now vulnerable to potential litigation from the various real owners of the IP rights. Some professional help beyond just box-ticking would have identified the potential problems without too much effort - the authors' names (and affiliations) are generally included in comments within the source code and in associated documentation.
Buying or Selling!
I almost got sucked into writing down some of my personal experiences over the past 40 plus years as Accountant, Adviser, personal Buyer and Seller, in a few countries. Sorry - I'm too old now to commit so much time!
Why do I keep getting involved?