How To Conduct Due Diligence Before Buying a Business?
When you are buying a business through online marketplaces like Business for Sale BC, it is necessary you make sure that the facts and figures of seller’s company are in order before you wrap up the deal. You can do it by conducting due diligence. The due diligence usuallytakes place 60 to 90 days before you buy the business. Once you and the business seller have signed the letter of intent, you can perform the due diligence. Due diligence is the process of investigating allthe accessible information of a particular business. The main objective of performing due diligence is to ensure that all legal and financial mattersrelating to the business are systematic and that there are no disagreeablerevelationsin case you decide to buy the business.Due diligence covers the following details:
Appoint Experts Skilled With The Due Diligence Process.
If you do not know how to conduct due diligence on your own, you must hire the professionals who specialize in performing due diligence. You can hire experts like an attorney, auditor, or a skilled business broker who have past experience with due diligence procedures. You can visit business marketplaces like Business for Sale BC for more details.
Check All TheFinancial Records
You should request the business seller to provide you access to business’s financial reports. It is important to check all the financial records comprising balance sheets, profit and loss statements, cash flow statements, and tax statements of at least last 3 to 5 years. You should have your auditor assess those statements to get the accurate picture of the business’s financial position.
Assess Organizational Structure and Practices
Gather all the information regarding business’s structure and procedures in place. Ask for a copy of corporate licenses, authorizations, permits, regulations, mortgage agreements, all transcriptions of board meetings, names of directors or partners etc. Ask your lawyer to review if the business is appropriately organized for future development plans, or if any changes are required.
Check All The Tangible Assets Before Buying The Business
Before you buy a business, it is imperative to know what you would be getting with the business. You should evaluate the value of all the assets like property, machinery, office equipment, stock material, etc.to estimate the suitable price of the business.
Check If There Are Legal issues
If you buy a business, which has some legal issues it can create complications for the business in future. The best way to avoid those situations is to assess in advance if the business you are planning to buy has any legal issues, like lawsuits etc. You can request for the copies of the business agreements; insurance policies, any contracts, or documents associatedwith the intellectual property of the business,or any documents about lawsuits filed against the business or filed by the business.Tell your lawyer to check all the details like, does business faces any potential risk due to litigation, is business effectively insured, does the licenses, and permits need to be renewed, etc.
Examine Employees Records
Before you buy a business, assess the employee records. You can have your auditor check the details regarding employees like their salary structure, bonuses, and various allowances provided by the business. Check how many employees and workers are working at every level, if there are any disputes between management and labors union, or if any employee has filed a lawsuit for unfair termination and harassment charges. In addition, review the employee policies and see if they require any modifications to avoid future risks.
Ask About Inventory System, Suppliers’ List, Marketing Strategies, Customer Database, And Sales Policies.
Ask seller to provide information regarding marketing and sales policies, customer details, and other important details regarding products and services offered by the business. You must check all the details like advertising campaigns, surveys, return procedures, product-testing methods, customers’ feedbacks, etc. This needs to be done to determine how business operates, what are the various stages involved from creating a product to selling a product, is the customers list expanding, etc.
In the end, the due diligence process is all about providing anaccuratedepiction of what is the current position of the business and where you can lead it in the future and what could be the correct price for the business. To get the list of business sellers, you can use the services of marketplaces like Business for Sale BC.