Just one little problem..(and the importance of due diligence)
A little lesson in due diligence.
Sometimes no matter how good a proposition looks, nothing ever goes right; especially when it’s meant to turn out wrong. The client comes along with a perfect proposition, and everything in order. Turnover is good, profit’s look healthy, I.S.O. rating’s are excellent, and the cash is flowing. It all looks amazing, but there’s no sales agreement to buy.
The question at the core of it all, is how long will it take to buy the company? Unfortunately, this is never straightforward, and sometimes it just never comes off. At a brief glance the turnover and high level details look excellent, so you start putting together a sales agreement and the due diligence process.
Now this point needs to be emphasized. Do your due diligence, and do it well. We were recently approached by a company and they ticked all the right boxes. Our team combed through their financials, and nothing was out of place, it all looked perfect. That’s what gave us the feeling something wasn’t quite right, and we still felt ill at ease.
My colleague, the skeptic that he is, decided to run a background check on this client and their perfect company which led to an interesting find. It was clear he has oversold on businesses in the past, exaggerating claims and making the financials look rosier than their reality. On deeper investigation, we learnt the I.P he was planning to use as backup collateral for the project was not his own. Even scarier, both he and the software developer were under no illusions that what they had stolen could not only lead to criminal charges for them, but for us as the fund raiser as well.
Needless to say we dropped him as a client and will now pursue for our total contracted fee and costs, but boy am I glad to have a cynic on staff.
So Caveat emptor*, and if you think a deal is too good to be true, you have one solution. Research, research, and research. Anyone genuine expects to do this when approaching a deal, and if your client is they should be ready for it too.
By: John Clarke
Bangkok Business Umbrella Group
*Latin for: Let the Buyer Beware