It is crucial that you do due diligence before you buy a business. What is due diligence? Well, this refers to viewing and reviewing, checking and counter checking of all available information related to the business you want to buy. The primary goal is to get an overview of what to expect as pertains all legal and financial factors. This ensures that you do not get into a trap that will result in either legal or financial difficulty in future just in case you decide to go through with your purchase. By digging deeper, you can unearth some issues and address them in advance before you can settle down to serious business. And yes, in order to do a thorough due diligence, you might need to involve your accountant, business banker and in some cases an attorney.
Due diligence should address the following factors:
1. The finances
To get an overview of the financial state of the business, you need to ask for audited financial statements. You might also ask for income statements, balance sheets, tax returns as well as the cash flow statements. After you have a look at these documents, you need to consult your accountant and determine whether the business is in debt or not, whether it is paying the debts, the business program margin as well as its profit margin.
2. Legal situation
This is the second factor that you need to consider when conducting a due diligence. You need to ask for the business’ consulting and professional agreements such as insurance policies, licenses, permits, documents for intellectual property and any documents for lawsuits. You should then employ services of your business attorney to review how these legal factors affect the business now and also in future.
3. The employees
Of course, when you buy a business, you do not come with your own employees. For that reason, you need to ask for details of the employees, their handbooks, their agreements, salary information and organizational charts. You should then review these details with the help of your attorney and determine how they affect the operations of the business.
4. The structure
This is yet another aspect you need to keenly look into. You need to ask for the business’ corporate charter or any bylaws as well as the minutes of the meetings held in the business. Have these details reviewed by your attorney in order to determine how the structure affects normal operations of the business. This way, you will have a clear picture of what you are dealing with.
In a nutshell, for you to be able to buy and run a business smoothly, due diligence is paramount. Armed with this information, you can easily buy a business and manage it effectively.