For a 500K deal, can we do all the due diligence ourselves?

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December 12, 2024

by a searcher from Georgetown University - The McDonough School of Business in Washington, DC, USA

for a 500K deal can we due all the due diligence ourselves or do we need to spend money and outsource on things like QoE? trying to do a small deal as an independent sponsor to learn + build track record, not concerned about making money at this point

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Reply by a searcher
from Rutgers in Philadelphia, PA, USA
You absolutely should have a transaction attorney that has experience in the state where the business is located. The attorney will need to check UCC filings, pending legal actions, etc. with searches that would be difficult for you to do on your own. Each state has their own tax liability quirks and you could be on the hook for unpaid taxes even if you're doing an asset purchase. You should be able to find an attorney to do the basics for around $###-###-#### .

If you're competent from an accounting perspective, I don't see why you would do a QoE for a $500k transaction. As long as you're approaching your diligence with the idea that you can't believe anything in the P&L (i.e. revenue must be proven with bank statements, credit card processor 1099Ks) and you understand the unit economics of the business, you should be OK.
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Reply by a searcher
from Occidental College in Portland, OR, USA
A good topic of debate with both side representing here. Bringing on the right team to give you confidence that what you’re buying is quality is extremely beneficial. They can also uncover opportunities for strengthening the company’s accounting processes and systems post-acquisition. Keep in mind, there are ranges of QoE—lighter touch/lower $ for smaller, less complex deals (as your question would suggest) to more in-depth analysis/higher $$ for larger, more complex deals. In my experience, a great CPA ought to work with you to match up pricing to scope vs. a one-size fits all contract. Think in terms of a taking a risk-adjusted approach. Good luck!
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