The Top 5 Reasons to conduct Due Diligence before you buy a business.
We are often asked whether it is important to conduct Due Diligence on a business opportunity before the purchase.
Yes, we think this is a very important to undertake due diligence before you make a commitment to buy a business.
Buying a business is a big investment for most people. So, it’s important to check it out properly before you buy. Here are the Top 5 reasons to conduct Due Diligence on the business you are looking at:
To get what you pay for.
Be sure of what you are paying for. Be really clear on what is included. And what is not included.
Check the assets you are buying, sight them, confirm title.
Check all contracts, be fully informed of your rights, entitlements and obligations.
Confirm your ability to trade in an unrestricted manner.
Check restraints on the vendor.
2. Things are not always as they seem.
Check the financial statements. Verify as much as you can. Cross check against third party information, such as tax lodgements, bank statements, supplier invoices.
Check the non financial records and indicators.
Question everything. Challenge. Poke. Prod.
Ask, “if this business is so good, why are they selling it?”
3. Skeletons in the cupboard.
Check in the cupboards.
Be aware of any undisclosed commitments, obligations or exposure.
Understand all tax and super obligations. Confirm supply chain.
Be clear of any and all entitlements you are taking on.
4. To understand the financial position.
Check the financial position. Assess the profitability. Check how reliable and sustainable it is.
Understand the financial ebbs and flows, when the money comes in and when it goes out.
Be very clear on how the business makes money.
5. To assess the opportunities.
Identify where improvements can be made, where additional profits can be found.
Consider what else can be done, to engage new customers, reinvigorate old customers, break into new markets, sectors, create new products and services.
Consider where this business could go if you build on this foundation.
As you can see, there is a lot to this and should not be taken lightly. Consider carefully before you dive in. Look at the business from all angles. Engage specialist assistance where necessary.
And then when you’re ready, get your structures organised, and proceed.
Let me know if you need a hand.
Peter
