Due Diligence costs

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May 11, 2023

by a searcher from Rice University - Jesse H. Jones Graduate School of Business in Katy, TX, USA

Can someone share the costs associated with a typical due diligence? How can they be structured in different ways? I'm looking for more from self funded perspective. I read that the costs could range from $20 - $30K.

Thanks

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Reply by a searcher
from The University of Chicago in Chicago, IL, USA
Depends on the deal scope, size, industry, funding structure and risk appetite, but I am budgeting $35-50k for $3-5m deal with operationally involved investors: $10-15k in QoE and $25-35k in legal expenses (things that would impact this are: complexity in customer contracts, lease agreements, employment agreements to create/negotiate, presence of investors especially if silent where registering securities is required, loan agreements to negotiate if not using SBA debt). Planning on taking care of business diligence on my end. I also know of people who do QoE on their own and just have lawyers to take a quick pass on documents for <$5k total.
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Reply by a searcher
from Harvard University in San Francisco, CA, USA
Here are the buckets of fees we typically budget for, and the things you should consider:
-Travel - do you need to fly/stay somewhere to do BUSINESS due diligence? Meet in person to build relationships? How often/how many times?
-Accounting - do you have the skills to due financial/accounting due diligence? What kind of shape are the numbers in? If not, budget at least $25k. (we DO have the ability to do it and still usually outsource)
-Legal - how much complexity is there? Even simple businesses can have legal complexity (due to shareholder base, entity structure, etc.)
-Tax diligence/structuring - do NOT skimp here. You don't want to inherit a problem. Sales tax compliance, nexus issues, blown S-corp elections, etc...big potential issues for an unwitting buyer.

Here's an article on the topic:
https://www.axial.net/forum/dont-break-the-bank-5-budgeting-tips-for-independent-sponsors/
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