>> What Is Due Diligence in Business Sale?

Due diligence is where you verify the information given to you by a business seller. The seller should give you access to the books of accounts and any other information that will help you in confirming that the business is making profits and will be profitable in the future. An ideal due diligence should be able to highlight any issues or problems that might need to be warranted or guaranteed.

Types of Due Diligence

There are three types of due diligence that you can do:

  • Legal: here your lawyers need to check and confirm if a business has the legal title to sell. The lawyers also need to determine whether a business owns all the assets. If there are regulatory or litigation issues, the lawyers have to ensure that the business seller addresses them before you can progress with buying the business.
  • Financial: here you need to check the financial records of the business to ensure that there are no black holes or any hidden financial issues. For ideal results you should work with a professional such as an accountant who will help you in identifying any faulty areas.
  • Commercial: this is where you find out how well placed the business is in the marketplace. You can easily do this by checking the competitors and the regulatory environment.
When to Begin

As a business buyer you should begin due diligence after you have agreed on the price and terms of sale. You should note that the seller will most likely ask for a down payment in order to secure the exclusivity period.

Although, you can negotiate on the period, you shouldn’t take more than four weeks to complete the entire process. To complete the process fast you should work with accountants and solicitors who will help you in identifying the risk areas.

What Should Be Contained In the Report?

There are many things that should be contained in the due diligence report. These things include:

  • Finances: these are financial statements, capital structure, financial projections and taxes.
  • Products: you should describe the products in detail. You should describe the products that have high sales and those that have low sales.
  • Competition: who are the main business competitors?
  • Management: it should include the company’s organization chart, biographies of senior management and any other information.
Conclusion

This is what you need to know about due diligence when buying a business. To have an easy time you should ensure that you work with professionals

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