Why We Need Due Diligence Just to Sign a Purchase Contract

Henry is an educated businessman. He has real estate license but wanted to find a method of earning extra income. He has been looking at various businesses. He was now interested in a Laundromat. He collected the necessary preliminary information and sent it to me, along with a signed accepted offer, to review and discuss. Prior to the Laundromat, Henry and I had reviewed two other businesses together that he passed on.

When I had reviewed what he had sent me, I gave him my insight into the coin laundry industry and pointed out things he should be concerned about. We also reviewed the signed accepted offer.  I told him the points I wanted changed.

I suggested he should put in a new offer with the caveats I suggested he get included. We then ended the phone conversation.

Read and Understand before You Sign anything.

I had not heard from Henry for over a month, so I sent an e-mail asking for a status on the deal. I received the following response, which is included in its entirety.

“Wow, I really blew it. I thought the business escrow was just like the real estate escrow process. We open and cancel escrows all the time with no recourse or fees. I should of listened to your advice more carefully. “Do not sign anything.”

After we spoke, I went into escrow in order to start the cash count process. The business broker told me the transaction was contingent on the lease terms, revenue or other material factors. I have found out that she is ignorant about the business escrow process. I thought it was odd that I had to front the (escrow) fees as well as a deposit. After the escrow was cancelled, the escrow company took my fees and part of my deposit. The broker sent me a form that I signed.  I thought it was a simple cancellation order instruction. The escrow owner claims I signed a form where I would pay for both seller and buyer fees even though the escrow was cancelled.

I guess I will have to go to small claims court. This is such a bummer.

Regards, Henry”

Henry’s email to me says it all. This is why I got into this business. Every buyer needs the assistance of a due diligence expert, regardless of how educated they are. It is not only about checking financials, and valuing the company you want to buy; there are so many other things to look at.
No one knows everything about everything. Buying a business is not for amateurs, but when you get it right, it can be the most pleasurable moment in your business career.

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Image credit:  Theodore Scott Hemera