Handling The Due Diligence Process


Due Diligence is the process that both buyers and sellers of a business sale will perform in order to verify exactly what the other party claims to have in regard to the business or themselves. Due Diligence is a little easier for the seller than the buyer. For the seller, they want to make sure that the buyer has both the financial means and the industry/business knowledge to operate the company. On the other hand, the buyer needs to examine all aspects of the business to make sure that what he is purchasing is exactly what the seller is claiming. Due Diligence is essential in making a sound investment.

Below are just some of the items that should be examined and verified by the buyer:

Business Financials

Tax returns, profit & loss statements, balance sheets, sales & use tax, payroll records, general ledger, check register, bank statements, current A/R & A/P, invoice records, debt obligations & lines of credit.

Management & Personnel

Organization chart, management contracts, employee agreements, procedure manuals, employee handbooks, benefit plans, vacation pay

Lease & Building

List of all real property leases, options, and annual costs, deeds for real property owned, Insurance contracts,

Production

Key Supplier contracts, key customer contracts, current contracts under negotiations,

Customers & Clients

List of customers and client concentration, competitor list, expressed warranties, outstanding gift cards, industry trends,

Proprietary Rights

Patents, copyrights, trade secret agreements, license, royalty and intellectual property rights, infringement of third party of property owned by the company,

Legal

Review all contracts and agreements related to the business. List of any pending litigation, arbitration or any other proceedings involving the company. Description of any violation of any government laws or violations. Workman comp claims.

FF&E

Current Furniture, Fixtures and Equipment list with make, model, year and condition of equipment, vehicles included with the purchase, estimated fair market value, depreciation schedule,

Inventory

List of current inventory, invoices with date purchased, condition and value.

Sales & Marketing

Advertising lists, sales order statistics, pricing policies, product warranties and customer refunds.

There are many questions that should be asked when performing due diligence, such as Why is the business being sold? What role does the seller play in the management of the company? How can the business be improved upon? Which employees will stay after the sale? And the list goes on and on. A buyer needs to be diligent about his or her due diligence.


If you have any questions about due diligence, please contact Certified Business Broker Robert Dean for a Free Business Consultation. Banner Business Sales, Inc. Phone: 310-793-6757. Email: info@bannerbusinesssales.com Website: BannerBusinessSales.com