Performing due diligence on a business being considered for purchase should be conducted much like a surgical procedure. The operation should be an organized examination of the vitals of the company. It should also be approached knowing that this is an invasive phase of the sale process for the owner.

 

This stage of buying a business begins once you have made your offer and the seller has accepted. A contractual agreement has been entered into between the buyer and seller outlining the price and terms of the sale. The contract is contingent upon the business passing "inspection," which is the due diligence period allotted to the buyer. A non-disclosure agreement would have already been signed by the buyer at the first indication of interest in the business. This means that buyers agree not to do anything that would let anyone know that the business is for sale or let anyone learn any of the information about the business that they discover in the process of examining it. The only exception is that buyers may inform their advisors, such as attorneys and accountants, in order that they may assist in the process.

 

When selling your business, maintaining confidentiality is crucial to a successful transaction. At CBB, preserving your confidentiality is as important to us as it is to you. Hiring an intermediary is the ideal way to ensure a smooth, confidential transaction. We understand the importance of maintaining confidentiality for both buyers and sellers and have developed consistent strategies to help ensure your transaction remains confidential from beginning to end.

 

Since it is the buyer's responsibility to uncover any potential problem areas of the business, it is important to be prepared. Depending on the size of the business, a buyer will typically have about two to four weeks to complete the process.  Having a checklist in hand to present to the seller at the beginning of the process will enable the seller to gather all the information in a timely fashion.  This will give you enough time to confirm all material facts of the business and validate what the seller has represented. The buyer, being the leader of the procedure, may call in specialists, such as an attorney to examine the legal aspects of the business and an accountant to scope the numbers.

 

The following checklist represents key aspects of a business that a buyer may wish to examine during the due diligence period. This checklist is not meant to fit all scenarios or to be all-inclusive, but to serve as a guideline:

 

  • Organization and Good Standing
  • Accounting, Financial Information, Taxes
  • Organization Chart
  • Physical Assets
  • Real Estate
  • Intellectual Property
  • Employees and Benefits
  • Licenses and Permits
  • Environmental Issues
  • Reports, Studies, Appraisals
  • Contracts, Agreements, Leases
  • Product or Service Lines
  • Customer Information
  • Litigation
  • Insurance Coverage
  • Vendors, Suppliers, & Professional Service Providers
  • Market, Marketing and PR Campaigns