Walking away, and why it isn't a failure

The short version

• Due diligence exists to find out whether the business is what you were told. Sometimes it is not.
• Walking away from the wrong business is a good outcome. Buying it is the bad one.
• Decide your deal breakers before you start, so the decision is not driven by money already spent.
• Many problems can be solved with price or terms. Some cannot.
• Walk away cleanly, honestly and on good terms.

The money already spent

By the time due diligence turns up a serious problem, you may have spent months and real money. That makes it tempting to keep going. But money already spent is gone either way. The only question is whether this business, at this price, is still right for you.

Problem, or deal breaker?

Often solvable with price or terms:

• Earnings a little lower than presented.
• Equipment that needs replacing soon.
• A customer concentration that a rebate or longer handover can address.

Often deal breakers:

• Earnings far lower than presented, especially if the seller cannot explain why.
• Undisclosed lawsuits, tax problems or liabilities.
• A lease or license that cannot transfer.
• A lender that will not finance the deal.
• A seller who is not honest with you.

Your own list, from Lesson B5.5, is your guide.

How to walk away

1. Tell the seller and broker promptly, with an honest reason.
2. Follow your letter of intent on notice, deposit and timing.
3. Return or destroy confidential information, as your NDA requires.
4. Thank them. Brokers remember buyers who were straightforward, and the next deal may come from the same broker.

What you gain

You keep your cash, your loan capacity and your time for the right business. And you learn what to look for next time.

The Open the diligence tracker tool helps you track requests, findings and deal breakers through due diligence.