You have identified an exciting opportunity and are about to take the final step in paying over the purchase price in buying the business. Stop. Have you done your due diligence?
What is due diligence?
It’s the process, undertaken by the buyer, to ensure that the business assets and trading conditions are what the seller claims it is.
The due diligence process is a necessary step to take before the agreement is closed. The process is usually divided into three areas.
Commercial (Operational) due diligence
Some aspects to consider are the equipment, property, inventory, employees, customers, market trends and the business intellectual property. You should also identify and assess any risk that may impact on the transaction, such as reputational risk.
Legal due diligence
This is an in-depth review of contracts, licenses, permits and other legal records to identify any legal risks, pending litigation and contractual obligations. It should also include the regulatory compliance of the business to ensure that it complies with all laws and regulations.
Financial due diligence
Financial due diligence focuses on the financial performance and stability of the company and includes a review of the financial statements, tax records, cash flows and debt and equity positions.
Due diligence is a complex process that requires expertise in various areas. The best would be to engage qualified professionals to assist you.
