Doing good buyer due diligence

Due diligence is a crucial step in buying a business. Many prospective buyers have the idea that it is only a matter of looking at the company’s books and a quick tour of its facilities, but it is so much more than that.

Due diligence involves a thorough review, an in-depth look at the business’s financial, legal and employee records among others, as well as its properties, equipment and operations.

It is important to begin the investigation process as soon as the business becomes of Interest. That way, you will know how to position yourself when you finally meet the seller.

Preliminary enquiries can start regarding the nature of the business, its products and services, the industry, its competitors, marketing efforts, customer base and so on. You can get information from the Internet, people from the industry, and a visit to the company itself even before you introduce yourself as a prospective buyer.

Get in touch with Companies House, where you can find information on the latest accounts, annual returns and company reports of over two million firms in the UK.

It is responsible for incorporating and dissolving limited companies and where all limited companies in the UK are required to register.

The length of time given is several weeks depending on your terms with the seller. Maximise it to ensure a smooth transition of ownership and to assure yourself that you are ready to assume over the business and take it to new heights.

When you extend an offer and reach an agreement in principle, but before signing a binding contract, that is when the company’s internal books and records will be open for you to inspect.

IMPORTANT CONSIDERATIONS

Human resourcesLook over staff records and

determine what type of skills and experience they bring into the company. Check their terms and conditions of employment as well.

Financial recordsAsk for the company’s books

and records and ask about their accounting and bookkeeping procedures. How is its money being managed? What are its past and projected returns? Enquire about their relationship with banks and lenders.

Products / servicesAsk for a complete inventory

of goods and services. How do they compare in price and quality to competitors? Do they meet industry standards? What are opportunities for improvement and possible expansion? Are there pending large contracts or orders?

AssetsAsk for a list of

property and equipment and their current valuation, as well as any existing leases or deeds.

OperationsIs it placed in a good

location? What is the management style being used? How does the company deal with suppliers and clients or end users? How dependent is it on technology and are the IT systems in place adequate?

As you are investing a lot of money, time and effort when taking over a business, it is only fitting that you examine its strengths and weaknesses, pros and cons, growth opportunities and risks before drafting a contract.

Bring along a lawyer and accountant or seek the assistance of qualified business brokers as you conduct due diligence not only for their expertise in specific matters, but also to help you see and ask about things from a different perspective.

More information

http://www.venturabusinessbrokers.co.uk