When buying a business, it is important to check certain factors and validate the information you have been given about the business you are potentially buying.
After you have made an offer, you will be given records for the business and will have a limited period of time to conduct a thorough due diligence.
This offers you the opportunity to see how your prospective business has been performing and should provide you with a clear and realistic idea of what the future of the business will look like.
It may also give you the ability to question the seller on specific issues with their businesses, or provide you with additional information that may lead to a deal being abandoned or renegotiated.
Due diligence can be done in three ways:
Legal due diligence
This involves a legal expert checking over the business and confirming to you that all the regulatory issues are entirely addressed.
It should also expose any ongoing legal obligations, which may put the newly acquired or merged business at risk.
Financial due diligence
This requires checking figures and making sure there are no hidden problems before moving forward with the sale.
The buyers accountant will often be involved in this process and they will want to conduct a thorough investigation of any financial obligations, such as debts or tax liabilities, that the sale company may have.
Commercial due diligence
You should check any competitors of the business, see how the business is placed within its sector.
You should only begin due diligence if you have agreed terms and a price with the previous business owner.
Once you have started due diligence, the owner might, if agreed, temporarily take the business off the market while you proceed during what is known as the exclusivity period.
For advice with due diligence, contact us today.