Due Diligence
You have found a business that you would like to call your own. You’ve made a contingent offer. Now you and the seller have the finish line in sight and both parties are ready to roll up their sleeves and focus on the due diligence process.
This is a buyer’s chance to do a deep dig into the business they are looking to acquire. As brokers, we help guide you through the process, but it is important to recognize that this is the responsibility of the buyer.
Once an accepted offer is in place, you will immediately receive the core of the financial information – 3 year’s tax returns, P&L’s, balance sheets and year-to-date interims. Most small businesses do not have audited financials. Often, tax returns are based on compiled financial information that has been presented to the tax specialist by the owner. There may be differences between the P&L and tax returns that need to be clarified. It’s your job, with the help of your accountant, to ensure the revenue and expense numbers are accurate.
A checklist of any additional information you will need to complete due diligence will need to be developed. This will include any bank mandated items. A few items from a typical checklist are listed below:
Review all licensing requirements and take the steps needed to obtain them.
Review all contracts with suppliers, vendors, customers, etc.
Review all operational policies, forms and manuals
If applicable, review of the current lease
Just remember, due diligence can be a fluid process. Questions may arise and it is critical that you get answers and voice any concerns that may arise. During this period it is critical to communicate with your broker. We can’t help you find a solution or get an answer if we don’t know what the issues are. As long as the lines of communication are open, it will be much easier to get a deal to the closing table.
If you want to learn more about buying a business, please email us at dayton@sunbeltnetwork.com or call us at 937-866-4611. We look forward to hearing from you.
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