Due Diligence: Is the Existing Business Worth Buying?

Due Diligence Specialist, Business Acquisition Consultant, Business Merger Consultant

Is the Existing Business Worth Buying: Due Diligence?

There are times when you might see worth in buying an existing business. You might find the prospective promising and profiting. This is the time when due diligence should start with accessing the records and books of that business. You receive a suitable time to investigate various facts and figures, which will give you a genuine picture of its performance and prospects. It will also present you with the points / issues / problems / loopholes that would require prior warranties or guarantees, before the signing of contract.

Due Diligence

If you are new in purchasing existing but working businesses, then you should educate yourself on the elementary three categories of due diligence that are to be followed, without fail. Also, you might want to hire separate adviser for each of the due diligence that are mentioned below:

Commercial Due Diligence: It includes assessing the credibility of the business in the market, evaluating its competitors and determining the regulatory environment.

Financial Due Diligence: It comprises gauging and comparing the numbers to ensure that there are no loop holes / black holes or hidden monetary matters

Legal Due Diligence: When you venture into a contract of sale & purchase, lawyers should judge the legal title of business to sell. Lawyers should also appraise ownership of every asset along with ensuring that all the litigation and regulation issues are completely addressed.

When to Start Due Diligence?

First agree on a price and terms with the selling business, then begin the due diligence process. There is possibility that they might withdraw their business from the market during your enquiry. This period is called “exclusivity period” and for this the seller generally demands a down payment to ascertain its security. In most cases, this period spans to minimum three to four weeks. Remember that this investigation period is passable.

Where to Get Help From?

One of the most standard and common method of due diligence is to employ solicitors and accountants on your payroll. They will classify the risk zones for you. However, in case the Existing Business which you are buying, is registered with Companies House, you can get hold of reproductions of its accounts, annual returns and various other important documents with the prospect business. For this, you can use the Companies House WebCHeck service.

You can download the documents from the website of Companies House. Note that there might be a small fee for this facility of evaluating the businesses value along with its assets.

What Points to Examine During Due Diligence?

You must understand the it’s just not about finances; due diligence spans across this one important factor. The “exclusivity period” should end with positive results, yielding all-inclusive information about the business and concerning prospects. You should know exactly what you are buying; what will need your immediate attention; what should be fixed; what will be cost of correcting the negative aspects / risks; and lastly whether their business is a right investment for you or not.

In other words, at the end of “exclusivity period”, you must have the answer to whether The Existing Business Is Worth Buying. Due Diligence should cover following points:

Commercial Management that should include marketing, client service, research and development:

Issues related to environment
IT Systems and other technologies
Foremost orders and contracts
Unsettled litigation
Terms and conditions of employment
Information Sources

When carrying out due diligence, make sure to go to depths and find every possible information regarding the business. The information can be unearthed in the form or documents or other ways. You must find out:

Employment Contracts
Payroll Records
Staff Files
Staff Manual

In some cases, following copies might also be relevant:

Financial Statements
Pension and Profit-Sharing Plans
Union Contracts

Rest, you should also contact bank, government taxation department and other external sources. You can also contact any good due diligence company for due diligence investigation services.

Bill Trueman a highly experienced specialist in risk review and due diligence has been providing Due Diligence Services since years. He is permanent member of AIRFA, and director of RiskSkill and UKFraud.

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