Buying a Business – What is Due Diligence?

If you are thinking of buying a business you will want to know the ins and outs of that business. This is so that you understand what you are buying and can try to discover any hidden skeletons.

To enable this to happen, you will want to investigate the finances, trading contracts, employees, properties, assets and liabilities of the target business. With this information you will be helped to judge if it is worth the price the seller is asking and what risks and liabilities you will be inheriting when you own the business. Lawdit will raise enquiries with the seller and/or seller’s solicitor as part of the due diligence process.

Every transaction will vary. It all depends upon the extent and nature of the business and what is agreed between the parties before we can determine the precise structure of the deal.

We can advise to begin with, that in almost every situation you must be sure that the business has no major problems. Undertake preliminary due diligence before you make a firm offer for the business. Be aware that the seller’s Sales Memorandum is naturally prone to gloss over the weak areas. So:

Get a feel for the business

Research its market and main competitors

Meet the seller. Try to visit the business.

Assess the key risks associated with the business’ future be they future demand, market, location, growth potential, competition, present and potential.

Ask industry experts for their views.

Look at figures, are prices and margins rising or falling?

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