Due diligence pitfalls that owners can prepare for

Resolve contradictory records, unsupported adjustments and operating dependencies before they surprise a buyer.

Educational owner resource. Read the cited sources and obtain advice for your circumstances.

Look for contradictions before someone else does

A buyer will try to connect the story, the financial records and the operation. Differences are not always problems: timing, classifications or system definitions can explain them. Unexplained differences are harder to assess. Prepare a short reconciliation for revenue, gross profit and earnings rather than assuming every report uses the same basis.

For each major claim, ask what evidence would let another person confirm it. If you say sales grew, specify the period and accounting measure. If you say an expense will disappear, identify why. If you say a relationship is durable, point to the agreement or explain that it is informal. Replace ambiguous descriptions with facts that can be investigated.

Keep proposed earnings separate from agreed earnings

Unsupported add-backs can become a focus of negotiation. Organize the bridge by category and show evidence status, recurring treatment and replacement costs. Do not move an item into accepted earnings merely because it appears in a polished document. Buyer-specific savings and future projects need their own discussion.

Also record negative adjustments and future spending requirements. A vacant role can make recent payroll look low; overdue investment can make cash generation look stronger than a sustainable operating plan. The accounting treatment and valuation implications may differ, so discuss them with your accountant and valuation advisor rather than applying an arbitrary multiple penalty.

Find dependencies behind the routine operation

Review concentration, lease renewal, staffing coverage and material agreements. Ask what happens if a key relationship changes or the owner stops doing unrecorded work. Consider how software, supplier accounts, payer access and operating approvals will move under the actual transaction structure. Record issues without inventing a universal risk score.

BDC describes diligence as a way to test a buyer’s investment thesis and investigate financial, operational and legal matters. Business Development Bank of Canada For a pharmacy, the review should be tailored with qualified advisors. Public industry statistics cannot replace investigation of an individual business, and a checklist cannot certify regulatory compliance.

Run a questions process that supports decisions

Create one questions log with an accountable responder and a link to the current supporting document. Mark the difference between a confirmed answer, a management explanation and an open item. If an answer changes, identify the affected summary and tell the appropriate participants. This helps avoid repeated requests and inconsistent versions.

Agree how a material discovery affects the next step: further review, a revised term, a remedy before closing or a decision to stop. Do not let an exclusivity period continue without clear milestones. Prepare enough information to support decisions while controlling sensitive disclosures. Use the seller document checklist and mock CIM to conduct a preparation review. The useful outcome is a short list of matters to resolve, with owners and dates, before a buyer’s timetable creates pressure.

Continue reading

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Sources and context

Canadian Pharmaceutical Trends
Channel, prescription and pharmaceutical market data; not acquisition prices. IQVIA notes audit revisions may change previously reported figures. Preserve report footnotes.

Purchasing a Community Pharmacy
Ontario-specific process. Guidance states at least 45 days for a complete accreditation application, not a promised approval time. Corporate amendments/share changes may require a different route.

How to conduct due diligence when buying a business
Generic acquisition diligence guidance; not pharmacy-specific obligations or legal wording.

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