Buyers of businesses often talk about the importance of ‘due diligence’. Essentially, due diligence is the process of investigating a business to determine the accuracy of the seller’s claims about the business and determine if there are any undisclosed ‘flaws’.
There is no set due diligence procedure to adopt. Every business is different and the level and extent of due diligence undertaken will depend upon the size and type of business being acquired and the level of risk that the buyer is prepared to assume.
Due diligence commonly involves reviewing property and equipment lease terms; reviewing supply agreements and customer contracts; determining what intellectual property the seller uses and looking at the staffing levels and the entitlements staff receive. This type of due diligence tends to rely upon information provided by the seller.
However, due diligence may also involve undertaking searches on the public record relevant to the business being acquired. These searches can reveal undisclosed loans over assets; who actually owns the intellectual property used in the business and whether the property from which the business is operated is affected by any adverse proposals. These types of searches are particularly important where the ability to operate the business is heavily dependent upon the site from which it is conducted.
Due diligence is an essential step in acquiring a business. Buyers should always seek professional advice about the scope of the due diligence and the appropriate due diligence conditions before entering into any binding agreement.
Contact Hallmark Business Sales today for more information.