Due diligence is the most important part of any acquisition. It helps buyers determine the value of the business they're purchasing, evaluates the current management, and brings risk and opportunities to light. Successful due diligence is a matter of proper preparation, managing expectations, and adhering to best-practice processes.
Get advice early
Retain an advisor before you prepare a Letter of Intent. A business advisor can help you gain a better view of your target and accelerate your preparation. You'll have access to a great deal of information that your advisor can interpret to help you valuate the business. An accurate valuation at the beginning of the process will spare many headaches down the road.
Have reasonable expectations
The smaller a business, the less likely they've kept audited financial statements, customer contracts, and management reports. The same is often true of privately held businesses, where there is less accountability than auditors or a board require. In these cases, be prepared for gaps in the information disclosed.
Manage internal stakeholders
Often, internal stakeholders become so focused on closing a deal, they lose sight of the rationale for acquiring the business in the first place. Remind those involved in the acquisition to not act on enthusiasm, and to carefully consider every piece of information discovered during the due diligence process.
See things through
Patience is key to a successful due diligence. It's tempting to rush the process, to "get on with it", and close the deal. Be mindful that this will likely create an unfavorable outcome later on, and that slow, steady assessment of the business is of the utmost importance.