Buying or selling a business? Your due diligence is a vital part of the process. Our due diligence checklist will help you tick all the boxes.
Buying a business is exhilarating. You’ll likely be excited about the opportunities for your future. You’re probably already considering how you’ll update, modernise or put your own spin on the current business plan and structure. No matter how excited you are to get started, conducting thorough due diligence before taking the plunge is an absolute must.
But due diligence is not just for a purchaser. As a vendor, you’ll also need to be prepared, including collecting all the necessary information, ensuring it’s correct and presenting it in a way that shows your business in its best light.
So, what is business due diligence for both a purchaser and a vendor? And what is the best way to accomplish it?
Business due diligence is the process of thoroughly investigating all relevant aspects of a business for sale. As part of it, you will review operations, financials, legal and tax compliance, intellectual property, assets, liabilities and customer and supplier contracts, among many other things. You may also look at other details that are important to the specific business you’re working through – such as shipping contracts or leasing arrangements.
Generally, due diligence is conducted after a purchaser and a vendor have agreed to a deal in principle but before any binding agreement has been reached.
When you’re buying a business, due diligence provides you with valuable information about two critical issues. First is the value of the business. Second, the risks associated with buying it. When done correctly, the purchaser’s due diligence will help you accurately determine whether the business is a good risk for you. It also ensures that you’ll be buying something that will make you money rather than just cost you money.
On the sale side, due diligence is just as important as the purchaser's, though sometimes it’s overlooked. This process includes three main elements. First, collecting and collating all the documents required for the purchaser to review. Second, ensuring that all the information is complete and correct. And third, preparing them in a way that is accurate but also presents your business in the best light.
This third prong is also the impetus to go through your business and manage any gaps that will make your business less appealing and the transition more difficult. This might mean modernising your document management and retention system. Or it could mean negotiating your supplier contracts for a longer term.
Ensuring that you’ve done your due diligence as the vendor will mean you’re in the best position to accurately answer and respond to any of the buyer’s questions while also presenting your business in the best light.
Your business due diligence checklist needs to cover all the elements here and also anything additional and specific to the business that you’re buying or selling. Use the table below as a jumping-off point and tailor it to your own needs.
DUE DILIGENCE CHECKLIST
Whenever you’re considering buying or selling a business, you should conduct the entire process – including due diligence – with the help of your commercial lawyer, as well as your accountant and business adviser.
At Patrick Dawson Law, we help you best understand every element of the business – whether buying or selling – to ensure that you’re making the best decisions for your situation. We can help you prepare your due diligence disclosures or understand the disclosures being presented to you. We’ll also be on hand to advise and assist in negotiating the purchase price and the contractual elements of your agreement once your due diligence is complete.
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