Buying A Business
All You Need to Know About Due Diligence
What Is Due Diligence?
Synonymous with the legal term ‘ordinary care,’ business due diligence has come to mean the research or audit a company would perform before investing in or acquiring another firm. Individuals are also encouraged to “do their due diligence” before making any major financial decision, like purchasing a home or obtaining a loan. In lamest terms, this simply means doing your homework and vetting your options.
But the more you have a stake, the more important due diligence becomes. The due diligence audit includes studying annual reports, Securities and Exchange (SEC) filings, independent research and much more, to determine whether the investment would satisfy return requirements, income needs and asset allocation goals. Because of these high stakes performing business due diligence on a potential investment often involves the assistance of a professional, like a business brokerage firm such as Sunbelt.
The Due Diligence Process
The business due diligence process can be a lengthy one, especially when it comes to private companies or large companies with a global presence. While the process can be convoluted and confusing, the most important thing to do is to take note of any discrepancies in company reporting.
Depending on the industry and situation, the due diligence process can vary. But generally speaking, it includes the following:
General Company Info
This includes company history, business plans, mission statement, goals, etc.
Company Management & Employees
This includes everything from the number of fulltime employees to the credentials of the company’s manager.
This includes a discussion of past, present and pending litigation, contracts, legally binding agreements, warranties, product liability documents, and more.
Products & Services
This includes the product/service offered by the company, pricing strategies, service agreements, company patents, copyrights, trademarks, licenses and more.
Marketing & Competition Information
This includes the company’s marketing plan, branding materials, industry analysis, growth opportunities, etc.
Perhaps the most important aspect, the financial records to review include balance sheets, income statements, growth projection, insurance coverages, tax filings, etc.
This includes all information about the company’s customers.
This would include the company’s assets, facilities, equipment, inventory, quality assurance reports and more.
If you need help during your business due diligence process or are in need of professional expertise, Sunbelt Business Brokers is here to help you. Our industry experts can lead you through the due diligence process, provide you with advice and help you close a competitive deal. Find your local Sunbelt Business Brokers here.