I see it all the time. Someone buys a small business for $100,000 or less and, to save on costs, skips due diligence. They tell themselves, “It’s just a small business; what could possibly go wrong?” But fast-forward a few months, and that “simple” purchase has turned into a nightmare. Here’s why even the smallest businesses need a thorough once-over before you sign the dotted line.
The Trap: “It’s small; due diligence isn’t necessary”
When it comes to smaller deals, there’s a common perception that legal and accounting checks aren’t necessary. Many people think, “How complicated could it be?” There’s an Excel sheet from the seller showing decent profits, and it seems like a good fit. But after the sale, things can look very different.
Here’s a real-world example: a buyer picks up a sole trader business that leans heavily on one main piece of machinery and the owner’s client relationships. The seller hands over a profit and loss statement they put together themselves in Excel, and it’s full of rosy revenue numbers and a steady client base. No accountant has ever seen it. But once the transaction is finalised, the new owner quickly realises they’ve been sold a very different story.
What can go wrong? Everything.
1. Financials don’t add up: The revenue claims, client lists, and pricing provided at the start don’t hold up. The invoices don’t match the client claims, and the income projections start to fall apart. This isn’t a minor error—it’s the foundation of the business, and it’s crumbling.
2. Equipment failure: The main piece of machinery that the business relies on turns out to be on its last legs. Within weeks, it’s dead, and repairs or replacement mean borrowing another 15% of the original purchase price. With cash flow already shaky, this extra expense pushes the bank’s patience—and the new owner’s finances—to the edge.
3. Banks get nervous: This isn’t a fun situation to be in. The bank, seeing the unplanned repair costs and unstable income, starts to question the owner’s ability to borrow more money to keep working. Just like that, a straightforward business venture becomes an uphill battle.
Why due diligence Is cheaper than regret
If the buyer had hired an advisor, they’d have spotted the red flags in the financials right away.
An accountant would’ve questioned the profit and loss statement, checked that invoices matched the income, and verified that clients and revenue figures were accurate.
Likewise, a lawyer would’ve helped verify that the machinery was fit for purpose or at least that its condition was clearly stated.
Yes, these services cost money upfront, but the alternative can end up costing a lot more.
And it’s not just the money. It’s the time, energy, and stress that come with finding out the business you bought isn’t what you thought.
Fixing a mess like this can take months or even years, sapping the joy and excitement out of what should be a fresh start.
Final thoughts: A little due diligence goes a long way
I get it—due diligence can feel like a hefty cost for a small business. But in the big picture, it’s small potatoes compared to what you might pay to dig yourself out of a bad buy. Whether a business costs $10,000 or $100,000, the principle is the same: get some professional eyes on the deal.
Trust me, a little due diligence goes a long way in making sure you’re actually getting what you pay for. It’s not about how much you’re spending up front; it’s about what you could be saving down the road. The real cost isn’t the purchase price—it’s everything that comes afterward if the deal isn’t what it seemed.