Have you ever had the unfortunate experience of discovering a major issue after the lease was signed or the escrow closed that significantly impacted the profitability or even the viability of your deal? If you have, you are not alone, as almost everyone who’s been in this business long enough has battle scars to prove or can tell you stories of other’s misfortunes. While these situations are painful, it is even more so when we realize we could have figured it out – or avoided it entirely – earlier in the process.
No matter what side of the business you are on your due diligence process likely has many moving parts, a variety of parties involved, and is critical to the success of not only the deal but also to your company. Failure to perform this pivotal part of the deal lifecycle well can cripple what could have been a very promising business opportunity or worse. Due diligence, when done correctly, will reduce risk, reduce future expenses, and maximize value. Let’s explore a few practices to help you avoid some of the pitfalls that can occur during the due diligence process.
- Internal Checklists – As we discussed in the previous article, having a well-defined set of requirements of your needs can greatly improve your efficiency when vetting new deals.That list can also be a great tool to leverage and expand during your due diligence. During the vetting process, the list can be abridged and focused on the necessities, but during the due diligence phase, you want to make sure to cover all your bases. This checklist will work best if it is thorough, covers all of your needs AND your wants, and ideally gives you a way to track tasks and projects that arise during the process. Also, it is beneficial if you can leverage the information that was already collected during the vetting process and bypass the time-wasting chore of duplicative data entry!
- External Checklists – While we all need to do our own homework, there is no rule against getting help from the other party.Create a list of all of the information you would like the other party to provide for you and then send it to them. This is a great practice for a couple of reasons. For one, a lot of the information you are looking at the other party already knows. They already went through this process and they will likely be happy to share their knowledge especially when the information doesn’t hurt their position in the deal. Secondly, by requesting information you may stumble upon issues that could hurt their position. If they are forthright you will get a good idea of “where the bones are buried” and maybe even improve your negotiating position in the deal. If they are not forthright, you will help protect your position in the event you end up in court due to their non-disclosure or misrepresentation of important information. However, the BEST time to get information is before you are committed, and money has changed hands. At this point the other party wants the deal to succeed which gives you leverage.
- Right hand| Left hand – Another area worthy of attention is when problems arise due to lack of communication, mindshare, and collaboration by members of your team. Many moving parts of every deal need attention and require different expertise. However, often where one person’s responsibilities stop, and the next person’s start things can be unclear. This leads to the potential of items big and small falling between the cracks. Having a system in place that promotes and simplifies your team’s ability to collaborate and provide access to the information everyone needs can go a long way to protect against these unintended mistakes. Numerous software solutions can help toward this aim; however, be sure that the system works for you and it can be aligned with your team’s needs.
With these ideas and all others, it is also important to always evolve. The problems we encounter on one deal will not likely be the same we encounter on the next. However, the old saying “Fool me once, shame on you. Fool me twice, shame on me” is worth considering. Your due diligence process can and should be more effective with each new deal. Use your experience to improve the process as well as refine and expand your checklists. There is no guarantee that you won’t continue to encounter new issues along the way, but you can get faster at discovering and working through those in which you are already familiar.
Throughout this process, software solutions can help simplify and organize the chaos. The ability to enable multi-party communications can be imperative during this process. With many stakeholders involved in this process (including landlords, tenants, attorneys, brokers, property managers, accountants, and more) it is important to have strong lines of communication. One lost email, or a person on vacation, or a comment that is misconstrued can lead to weeks and weeks tacked onto an already lengthy process. That is why a software solution that allows for collaboration amongst all parties, both internal and external, is key to decreasing the amount of time the process takes and ultimately reducing the total operating costs as well.
If you are interested in exploring these concepts in further detail, Common Areas can help. Common Areas strives to help organizations like yours increase productivity between your people, properties, and processes through our configurable cloud-based software solution. Common Areas empowers you and your team by providing tools tailored to your needs in the lease lifecycle management process. These tools help your organization make better-informed decisions, save time, and be more productive in your business. Click here to schedule an in-depth Discovery Call with experts to find out how Common Areas can help.
Our next blog in this series will discuss ways to proactively plan and manage responsibilities related to approval management especially for those who are in various stages across multiple deals. Missed the first two installments in this series? See the Additional Resources listed below to catch up!