Question:
We are currently in due diligence on a wholesale/distribution company and we are finding the operations do not seem to run as smoothly as the seller has indicated. My future partner feels we should try to get a price reduction. I think we should walk away from the deal altogether. Do you have any thoughts on how to handle this situation?
Answer:
Most businesses don’t operate as well as the seller represents – remember, they’re trying to sell you their business! That being said, I don’t agree with you to simply walk away because that will likely lead you on an endless search for the perfect business which doesn’t exist.
In nearly every due diligence, you are going to uncover some inconsistencies.
The issue is to separate them into incidents and/or catastrophes.
You should overlook the incidents and deal with the catastrophes.
This could mean renegotiation or it could require you to walk away from the deal.
In this case, it doesn’t sound like a catastrophe at all. However, you need to determine what it will take for you as the new owner to get the business running like you want it to and at what cost. This is part of the process of buying and operating the business.
My bigger concern here is the fundamental difference you and your partner have in evaluating this business. It sounds to me like you have very different criteria about what you each want in a business and you both need to have the same philosophy in evaluating businesses even if you have different strengths. This does not mean you must always agree with each other. Constructive debates are a good thing, both now and when you are co-owners. However,