The Most Common Mistake First-Time Buyers Make

Brandon Chicotsky
Jul 23
11 min read

Updated: Aug 1

Skipping due diligence is the biggest mistake most first-time business buyers make. This critical step ensures the business you're purchasing is financially stable, legally compliant, and operationally sound. Without it, you risk inheriting hidden debts, legal troubles, or dysfunctional systems that can derail your investment.

Key takeaways:

46% of deals fail due to due diligence issues.
Buyers often rush deals, trust seller-provided data, or lack experience to ask the right questions.
Skipping due diligence can lead to financial losses, legal challenges, and operational failures.

First-time buyers should approach acquisitions with discipline, using tools like financial audits, legal reviews, and expert support. Professional guidance, such as services from firms like God Bless Retirement, can simplify the process, offering certified valuations, expert networks, and confidentiality to protect your investment.

Avoid costly mistakes by taking the time to verify every detail before closing a deal.

The Critical Mistake: Skipping Due Diligence

Many first-time buyers make the error of rushing into acquisitions without fully inspecting the business they’re about to purchase. While this might not cause major issues for smaller deals, it’s a risky gamble when significant investments and your financial future are at stake.

Here’s a startling fact: 46% of deals fail due to due diligence issues [7]. That’s nearly half of all acquisitions falling apart because buyers didn’t dig deep enough. Yet, some still treat due diligence as optional or a box to check off quickly.

What is Due Diligence?

Due diligence is essentially a deep dive into a business’s financial, legal, operational, and market fundamentals [9]. Think of it like a full-body scan for the company you’re considering buying - it reveals what’s healthy and what isn’t.

Mark Meloche, Director of Growth & Transition Capital at BDC, sums it up perfectly:

"Due diligence is about trust - and verification. You're trusting what you're being told by the other side, but you're also verifying, making sure the numbers match the reality on the ground." [3]

This process breaks down into four key areas, each critical to ensuring your investment is sound:

Financial due diligence looks at financial statements, cash flow, assets, liabilities, and tax compliance to confirm the business’s financial health [8].
Legal due diligence reviews contracts, licenses, litigation history, and regulatory compliance to uncover any hidden legal risks [8].
Operational due diligence examines production processes, IT systems, supply chains, and facilities to gauge the company’s ability to deliver on its promises [8].
Commercial due diligence assesses the market position, customer base, competitive landscape, and growth potential to determine the business’s long-term viability [8].

Skipping this step often leaves critical issues lurking in the shadows.

What Happens When You Skip Due Diligence

The risks of skipping due diligence aren’t hypothetical - they’re playing out in real deals with real consequences. Research shows that only about half of mergers and acquisitions achieve their intended goals [8], and poor due diligence is a major reason why.

Financial disasters are one of the most immediate risks. Take AT&T’s acquisition of Reliance Communications in 2000, for example. Skipping proper due diligence led to a $5 billion loss in shareholder value [5].

Legal troubles can also emerge long after the deal closes. Bank of America’s acquisition of Wells Fargo is a cautionary tale. Overlooking fraudulent account practices during the deal’s evaluation led to a significant loss in stock value, legal challenges, and long-term reputational damage [5].

Operational failures are another common pitfall. When UK bank TSB merged with Sabadell in 2018, poor due diligence led to integration issues, system failures, and widespread customer dissatisfaction [5]. The fallout severely harmed the bank’s reputation.

Even smaller deals aren’t immune. In one case, a lender skipped proper oversight on a $1.5 million construction project. When the contractor disappeared, the lender discovered they had overfunded the project by $600,000, resulting in an $800,000 loss [6].

There’s also the risk of hidden compliance issues. In 2022, the SEC issued 462 enforcement actions against companies, with an average fine exceeding $9 million [4]. Without thorough due diligence, you could unknowingly inherit such liabilities.

Contrast these failures with success stories. When Adidas acquired Reebok in 2005 for $3.8 billion, comprehensive due diligence helped Adidas understand Reebok’s brand, market position, and financials [9]. This preparation paved the way for a smooth integration and strategic success.

The lesson here is clear: skipping due diligence can lead to massive financial losses, legal headaches, operational breakdowns, and reputational harm. A disciplined review process can save you from these pitfalls.

As Meloche wisely points out:

"You're never going to have a deal without risk. The goal is to try to minimize the surprises post-close", [3]

In the next section, we’ll walk through a step-by-step guide to conducting thorough due diligence and protecting your investment. Stay tuned.

Why First-Time Buyers Skip Due Diligence

Grasping why first-time buyers often bypass due diligence is crucial for understanding the risks tied to such decisions. These tendencies can directly influence the outcome of an investment, often steering it toward unnecessary pitfalls. The reasons typically boil down to psychological factors, time constraints, and misplaced trust - each of which has the potential to derail even the most promising acquisition.

Emotions and Lack of Experience

Emotional attachment is a major reason buyers skip due diligence. For many first-timers, excitement about a potential purchase clouds their judgment, making it harder to see the economic realities of the deal [1]. This emotional high can create unrealistic expectations and lead to an underestimation of challenges [1]. Compounding the issue, inexperience leaves buyers unsure of what questions to ask or how to dig deeper into the details [1]. Many end up relying on surface-level information, often skipping crucial steps like independent verification.

Rushing to Close the Deal

The pressure to act quickly is another significant barrier to proper due diligence. The thrill of a deal, combined with a fear of losing out, can push buyers to cut corners [10]. This "scarcity mindset" often leads to a rushed process, where critical investigations are overlooked. Competitive situations only heighten this urgency, with buyers feeling pressured to trust initial information rather than taking the time to verify it independently [2].

Overtrusting Seller Information

Placing too much faith in seller-provided data is a dangerous trap for first-time buyers. Financial projections, customer lists, and operational data are often taken at face value without independent checks. This is particularly risky given the legal nuances of business sales. Many purchase agreements include non-reliance provisions that prevent buyers from holding sellers accountable for any representations made outside the contract [11]. Delaware courts, for instance, have upheld these provisions, limiting buyers' ability to file fraud claims after a deal closes [11]. Unfortunately, many first-time buyers don’t fully understand these legal dynamics and assume seller-provided information is entirely accurate. This misplaced trust can create a false sense of security, making it easy to skip due diligence.

When emotional attachment, time pressure, and excessive trust converge, first-time buyers can find themselves in a precarious position, bypassing the very process designed to safeguard their investment. Identifying these pitfalls is the first step. Up next, we’ll dive into actionable strategies to help avoid these common due diligence mistakes.

How to Avoid Due Diligence Mistakes

Avoiding mistakes during due diligence is possible with a well-organized approach and the right tools. By starting early, keeping everything structured, and knowing what to focus on, you can break the process into manageable steps.

Step-by-Step Due Diligence Process

Due diligence usually takes between 30 and 60 days [12]. Here's a breakdown of the key steps:

Financial Audit: Examine balance sheets, income statements, tax records, and debt schedules. Having a CPA review these documents helps uncover any discrepancies [14].
Document Review and Interviews: Analyze all necessary legal documents and interview key personnel to ensure the business operates in line with legal and industry standards.
Business Model Assessment: Review the company's business plan and operational structure to gauge its long-term sustainability.
Valuation and Offer: Use the collected data to determine a fair valuation that reflects the true worth of the business, rather than relying solely on seller estimates.
Risk Assessment: Identify and evaluate potential risks to make informed decisions [12].

To make this process more efficient, the following tools and resources can be invaluable.

Tools and Resources You Need

The right tools can simplify due diligence and improve accuracy:

Virtual Data Rooms (VDRs): Platforms like iDeals, Intralinks, and Firmex provide secure, encrypted environments for storing sensitive documents [15].
Due Diligence Management Software: Tools such as Merrill DataSite and DealRoom help coordinate document collection and analyze risks [15].
Financial Analysis Tools: Software like QuickBooks, Xero, and Fathom allows for quick assessment of financial health and helps identify potential problem areas [15][16].
Professional Support: An advisory team - including brokers, attorneys, and CPAs - is crucial. CPAs ensure financial accuracy, attorneys handle legal compliance, and bankers assist with evaluating financing options [14][16].
Contract Review Tools: AI-powered platforms like ContractWorks, Agiloft, and Ironclad scan contracts for critical clauses and flag risks [15].
Risk Management Tools: Solutions like LogicManager, RiskWatch, and Riskonnect, paired with SWOT analysis and risk matrices, help identify and mitigate potential issues [15][16].
Productivity and Tracking Tools: Platforms such as Asana, Notion, Monday, Trello, and Google Sheets, when used with a detailed due diligence checklist, ensure all tasks are tracked and completed on time [13][16].

How God Bless Retirement Helps First-Time Buyers

God Bless Retirement is dedicated to guiding first-time buyers through the often-complicated process of due diligence, helping them sidestep common pitfalls. By following a disciplined approach and offering professional guidance, they empower buyers to make informed decisions with confidence.

Certified Business Valuations

One of the standout services offered by God Bless Retirement is their certified business valuations, which take the guesswork out of determining a business's worth. Unlike firms that rely on rough estimates, their valuations adhere to professional standards.

"Our thorough valuations include research and assessment from personnel who are certified by the National Association of Certified Value Analysts." [17]

These certified valuations are recognized by buyers, sellers, banks, courts, and even the IRS [17]. For first-time buyers, this is a game-changer, removing much of the uncertainty that can lead to overpaying for a business.

The benefits of accurate valuations are clear. Businesses that are properly valued tend to sell 20–30% faster and often achieve 10–15% higher sale prices [18]. For buyers, having access to such precise valuations ensures they’re paying a fair price based on the business's actual performance - not just the seller’s optimism.

Expert Network and Professional Support

God Bless Retirement offers a complete support system for first-time buyers, simplifying the process by connecting them with industry professionals. Instead of juggling multiple experts on their own, buyers gain access to a team that includes CPAs, Business Growth Specialists, Executive Coaches, Tax Advisors, Financial Planners, Due Diligence Specialists, Investment Bankers, and more [17].

"We manage the entire process of buying or selling a business for clients." [17]

Specializing in businesses with up to $25 million EBITA, the firm’s Managing Principal, Brandon Chicotsky, brings nearly 15 years of private equity experience to every transaction [19]. This depth of expertise is especially valuable for first-time buyers, helping them identify potential issues during due diligence that might otherwise go unnoticed.

"If anyone is ready to buy or sell a business, we'll handle the entire process from start to finish. From sourcing and vetting to navigating complex administrative and evaluative processes, we'll bring all stakeholders together to ensure deals get done." [19]

Their integrated approach not only simplifies the acquisition process but also prepares buyers for the confidentiality challenges that come with it.

Confidentiality and Buyer Education

Confidentiality plays a critical role when evaluating multiple acquisition opportunities or keeping competitors in the dark about your plans. God Bless Retirement places a strong emphasis on maintaining discretion throughout the process.

"We engage private network communities of buyers and sellers that have been nurtured over a decade from work in private equity and brokering. We also protect CONFIDENTIALITY for all stakeholders." [17]

In addition to safeguarding confidentiality, the firm prioritizes educating buyers. They host monthly forums that cover a wide range of topics, including real estate banking, AI, energy, supply chains, venture capital, and more [19]. These sessions give first-time buyers valuable insights into market conditions and industry trends that can influence their acquisition decisions.

"Every month, we bring together M&A professionals and others with a book of clients who benefit from gaining an information advantage." [19]

As a family-led business, God Bless Retirement operates with a mission to "strengthen families for generations to come" [17]. This focus on building relationships rather than just closing deals resonates strongly with first-time buyers, who are often making one of the most significant financial and personal commitments of their lives. It’s an approach that fosters trust and confidence throughout the journey.

Conclusion: Making Smart Decisions as a First-Time Buyer

Your first business purchase is more than a transaction - it's a pivotal step toward building a future. By combining thorough due diligence with the right support, you can safeguard your investment and set yourself up for success. While the thrill of discovering the perfect opportunity can be exhilarating, approaching the acquisition process with discipline ensures you’re making informed decisions that protect both your finances and long-term goals.

First-time buyers face unique challenges, and the statistics don’t lie - many transactions fall through due to rushed decisions, skipping crucial evaluation steps, or relying solely on seller-provided information without independent verification. To overcome these hurdles, having skilled guidance is not just helpful - it’s essential. Expert advisors can turn potential risks into strategic opportunities, helping you navigate complex regulations and identify ventures that align with your goals and financial situation.

God Bless Retirement (GBR) takes this process a step further by offering a family-led approach that prioritizes confidentiality, integrity, and legacy-building. Their philosophy centers on treating each acquisition as a generational financial milestone, focusing on strengthening families for years to come. Rather than simply closing deals, GBR aims to dignify both buyers and sellers, ensuring that every transaction contributes to lasting legacies.

As GBR explains:

"God Bless Retirement (GBR) manages the entire process of buying or selling a business for clients. We are a family-led brokerage with certified valuation experts, financing resources, and effective targeting of private and public marketplaces for clients. GBR redefines lower-market client care by dignifying buyers and sellers, supporting generational financial-life events, and helping secure legacies. Our mission is to strengthen families for generations to come." [18]

One of GBR’s standout features is its integrated approach, which eliminates the need for buyers to coordinate with multiple professionals independently. By leveraging a network built on years of trusted relationships, GBR simplifies the process while maintaining strict confidentiality. This discretion becomes invaluable when evaluating multiple opportunities or negotiating deals, ensuring that clients retain their competitive edge [17].

With the right support, your first business acquisition can become a stepping stone toward a secure and prosperous future. GBR’s disciplined and family-first approach ensures that buyers are not only making smart decisions but also creating a legacy that lasts for generations.

FAQs

Why is due diligence so important for first-time business buyers, and what key areas should they prioritize?

Due diligence is a must for first-time business buyers. It helps you uncover potential risks, verify the seller's claims, and steer clear of costly mistakes. Skipping this step could leave you facing unexpected financial or operational hurdles later on.

When diving into due diligence, pay close attention to these key areas:

Financial records: Review income statements, balance sheets, and tax returns to confirm the business is profitable and financially stable.
Legal matters: Investigate any pending lawsuits, unresolved debts, or disputes over ownership.
Assets: Evaluate the condition and worth of physical assets, intellectual property, and inventory.
Operations: Familiarize yourself with daily operations, employee roles, and customer relationships.
Compliance: Check that the business complies with local, state, and federal regulations.

By digging into these details, you'll be better equipped to make confident decisions and position yourself for success in your new business venture.

What psychological or situational factors cause first-time buyers to skip due diligence, and how can they avoid these pitfalls?

First-time buyers often overlook proper due diligence, driven by overconfidence, the pressure to act quickly, or a fear of missing out on what seems like a golden opportunity. Sometimes, the sheer complexity of the process or an underestimation of potential risks can also lead to skipping essential steps.

To steer clear of these traps, take a moment to pause and put together a comprehensive checklist to guide your evaluation. Consult with trusted professionals like financial advisors or attorneys who can spot potential red flags you might miss. Above all, remember that taking the time to do thorough due diligence is key to avoiding costly errors and ensuring the business you're considering is a smart investment.

What steps can first-time buyers take to ensure a thorough due diligence process and protect their investment?

When stepping into the world of business ownership for the first time, teaming up with seasoned professionals like attorneys, accountants, and business brokers can be a game-changer. These experts can meticulously review financial records, legal documents, and operational details to uncover and address any hidden risks, giving you peace of mind as you make your investment.

On top of that, tools like checklists and financial analysis software can keep everything organized and help you assess critical details with precision. By blending expert advice with smart tools, you'll get a clear picture of the business’s financial standing, legal framework, and day-to-day operations - empowering you to make decisions with confidence.