Under LOI

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December 28, 2023

by a searcher from The University of Arizona - Eller College of Management in Gilbert, AZ, USA

Finally after about 8 months of searching I’m under LOI! The target is a final mile produce distribution company, focused mainly on restaurants and small grocery (think bodegas). This target has some strong affinities to my career background, even my prior business that I owned which was a food service and Vending company.

Im curious how others have dealt with the outlay of the DD process. I have my deal team in place, but how did you sequence you legal and financial DD? I really don’t want to outlay about 30k on a deal that could go sideways early on, and interested in the community’s thoughts and experiences.

thanks

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commentor profile
Reply by a professional
from The University of Texas at Austin in Austin, TX, USA
Congratulations! Best practices I've used and that we offer our clients.
1. Financial due diligence: only pay part of the total now & gave a fixed price, not an hourly rate
2. If the deal goes bust early on, remaining funds are applied toward future deals. We offer that for clients.
3. Legal: ask for a similar payment structure as the above.
4. Have a comprehensive due diligence list that includes financial, legal, operations, marketing, sales, customer, supplier, tech, etc.. While financial due diligence is underway, meet with the seller weekly and make sure you're getting answers to all the other areas.

5. This will also help you get to know them. What their typical week is like, how involved they are in business and much more.

6. You can find out a lot about the seller & the business.m that may make you walk away early on by being really proactive about the various areas of due diligence.
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Reply by a searcher
from The University of Arizona in Gilbert, AZ, USA
Well, just in case anyone is interested, deal died right after I paid for DD, never actually started DD. Went out and visited and was getting the data box info set up for DD, selller ended up having two tax returns, one sent to the IRS and one he was using for selling the business. I also couldn’t hit the numbers for income on the bank statements, etc. I think this post says anything, it is that your gut instincts are better than you think.
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