You’ve been told to do your “due diligence” several times already, to be sure, before you buy a business. What exactly does that mean? Well, it’s more than just looking at the surface appearance of the business. It means that you need to dig deep and ensure that there aren’t any hidden problems.
It’s especially important for anyone who’s considering a large transaction, such as purchasing a business, to do their due diligence, even though it may delay your transaction considerably.
When should you do due diligence?
Due diligence is usually done between the signing of the intent to purchase and the formal purchase agreement. This period is a chance for the buyer to review the business records to be sure that there aren’t any hidden surprises. Some of the things to look for include liens on the company’s assets, sales agreements anything else that might be a liability once the company is purchased. All of those factors should have a role in the purchase agreement terms.
As part of the due diligence process, you should review documents like the employee handbook, tax records, sales documents, and anything else that has to do with the running of the business. If there are executives and board members in the business, you need to know their contract terms, and you may need to do background checks on them.
You should check all legal records. This includes everything from the business structure documents to any regulatory agency involvement with the company. Review all lawsuits that are against the company, as well as any that have been filed on behalf of the company.
Who does due diligence?
Doing due diligence involves the buyer and seller working together with their respective teams, which usually includes lawyers and accountants. Your attorney can help you with this aspect of buying a business so that you can ensure you’re protecting your interests.