‘Is Your Mother a Prostitute?’

By Philip Josephson, Founder, Law Office of Philip Josephson

That question was asked of NFL prospect Dez Bryant by Jeff Ireland, general manager of the Miami Dolphins. The question and the story erupted into national news. Whether the question was in good taste or was relevant is questionable. But, if the Dolphins deemed it to be a further piece of information they needed before giving this person $15 million to $20 million, then they should ask. Similarly, every company should ask and pursue the important due-diligence questions in business transactions.

Recent examples in the telecom industry include a company that intended to purchase another telecom company’s base of business. The buyer and seller had been conducting business together for years, so the buyer assumed that there were no skeletons. Heck, even the seller thought that there were no skeletons. Until it was discovered during forced due diligence that the selling company – although in business for more than 10 years – had never filed the correct registration and formation documents. This meant the parties had to go through a lot of trouble to rectify the matter with the FCC, state PUCs and the secretaries of state.

Another example is the telco that attempted to obtain a line of credit to help with planned capital expenditures. The bank examiner, in performing its due diligence, noticed that the telco had failed to make certain filings in its past. As a result, the bank refused to give the line of credit, the telco had difficulty finding cash elsewhere, and the expansion plans were thwarted.

Lastly, due diligence – or lack thereof – also hurt an agency that purchased the base of another agency. There, the buyer took all information from the seller without actual, full inquiry. The buyer was stunned to find out – after the purchase – that the seller’s customer base and their billings were not as presented at the time of sale.

These stories happen daily in all industries in various business transactions. Due diligence saves entities from entering into adverse situations and can prevent losses. It may seem to be “needless paperwork” when the companies are focused on “the deal.” It is not needless when an owner is left with a significant loss or when a company is faced with a lawsuit from its shareholders for entering into poor transactions or for waste of company funds.

So go ahead and ask your questions and turn over every rock in order to know what you are doing, what you are buying or selling, and who you are doing business with. It is your money, your business and your future. Do not leave it to chance, or give it all to a prostitute.

Philip Josephson is the founder of the Law Office of Philip Josephson, which focuses on providing general counsel and strategic planning services to business leaders and business owners. As outside counsel to a variety of companies, the law firm is uniquely able to add value at the increasingly crowded and confusing intersection of law, finance, strategy and operations. Josephson earned a bachelor of business administration degree in finance from the University of Miami, a juris doctorate from the University of Miami School of Law, and an master’s degree in business administration from Columbia Business School. He is a member of the Florida Bar, the Arizona Bar and the Federal Communications Bar. He also is a member of the 2009-10 PHONE+/Channel Partners Conference & Expo Advisory Board.