Due Diligence - Do it, No Exceptions

Before you buy a business you will given a specified period of time to carry out a due diligence investigation of the business.

Due diligence simply means checking out the business fully.

As the buyer, you will be able to access all the financial records of the business, look at all the facilities, equipment, staff, stock, etc. If you show a serious interest in the business, you will find the owner will give you all the information you request. The owner generally will bend over backwards to assist you and help you come to a decision to buy.

You cannot simply assume that the owner of the business will be totally honest with the information supplied to you. You need to investigate, confirm and leave nothing to chance. During the due diligence process, don’t forget to make use of your professional advisers because they may pick up things you could miss.

A lot of the information you will require will be in the form of written documentation, so make sure you see copies of all relevant papers, such as leases, contracts, finance agreements, stock sheets, invoices, reports and all the financial records and statements.

You should ask for the management reports that the business should have completed periodically and make sure you see the debtors list (people owing you money), staff records, payroll, customer details, marketing brochures, stock records, list of all assets, sales reports, etc.

You may need to bring in your accountant to review the financial statements that have been prepared over the last 3 years and ask your accountant to prepare an independent financial report on the state of the finances of the operation.

© 2005 StartRunGrow

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