"Don’t wait around for a shoebox full of documents—be the squeaky wheel that gets the grease."

The Unexpected Adventures of Buying a Business

Pablo, a budding entrepreneur from Seville, struck gold—or so he thought. When he began the due diligence on his newly acquired business, the owner handed over all the necessary documents, and even granted access to the accounting database, like he was giving Pablo the keys to a treasure chest. Everything seemed perfect—no skeletons in this closet!

But let’s be real—this almost never happens.

Most first-time buyers dream of purchasing a well-organized business, only to find that reality often looks more like a sitcom than a smooth transaction.

Situation 1:

The owner doesn’t keep any records. Instead, they stash all their documents in a literal shoebox, handing it over to an accountant just in time for tax season. The reports are usually riddled with errors, and there’s no operational report in sight. Want more info on checking tax documents? Check out our article.

Situation 2:

The business has an in-house accountant, but it’s the receptionist who, during the job interview, was asked, "Do you know QuickBooks?" She replied, “Yes,” having only heard the name. Now, she’s pushing buttons like she’s playing a video game, producing financial reports that would make any seasoned accountant cringe. The business owner, blissfully unaware, believes everything is in perfect order—until, of course, due diligence day.

When faced with an error-riddled accounting system, it’s crucial to get hold of the primary documents, usually invoices. The way records are kept in such businesses often makes it impossible to link transactions properly.

Pablo once encountered a construction company where the monthly materials cost was $150,000, all paid by credit card. The purpose of each payment was simply marked as “materials,” with no specifics. It was as vague as a flamenco dancer’s mysterious smile—potentially masking some questionable spending.

To figure out what’s really going on, you’ll need to perform recovery accounting. This involves collecting all primary documentation for a specific period, say a month, and entering it into a fresh database. The difference between the seller’s records and reality? It’s usually as wide as the Grand Canyon. Need proof? Read our article "Who Checks the Business" to see for yourself.

Communication Woes:

• Sellers often drag their feet, slow to provide documents or responses. They might be hesitant to reveal what’s really happening in their company.

• It’s essential to agree on what will be checked and when, right from the get-go. These details should be part of your proposal, and the seller must commit to providing all the necessary documents.

• If you’re bringing in professionals, make sure they’re available when you need them. Keeping to the due diligence schedule is critical—missing deadlines can be a dealbreaker!

Don’t wait around for the seller to hand over all the paperwork on a silver platter. If something’s missing, give them a nudge. A gentle reminder might go like, “We’re not here to audit your personal affairs. Just provide the documents you agreed to.”

For those keen on mastering the art of negotiation in sticky situations, check out our CLASS Negotiating course. And for a successful due diligence process, our CLASS Business Due Diligence course has you covered.

Remember These Points:

• Dreaming of a perfectly organized business? Reality check—most are anything but.

• Be prepared for chaotic accounting practices and shoeboxes full of documents.

• Insist on getting the primary documents to understand what’s really going on.

• Perform recovery accounting to uncover discrepancies between seller’s claims and reality.

• Communication is key—agree on a timeline and stay on top of deadlines.

For more questions about buying a business call us +1 (561) 867-7697