Due diligence is essential when you want to buy a business

Chances are you do not buy businesses for a living. However, there may be one you want, one you have had your eye on, one you think you can operate successfully.

Since this will be your first, and possibly only, transaction of its kind, you want to be sure you perform the due diligence that will answer any questions you might have about buying a business.

Researching the market

Consider why the business is up for sale. Who are the customers? What are the products and how are they marketed? What kind of competition is there? What processes will you need to go through to transfer trademarks or patents and the company logo?

Reviewing business documents

Look over the bookkeeping documents carefully to determine assets and liabilities. Will you be expected to assume the liabilities, and are there sufficient resources and income flow to cover those costs? Review all the business documents and agreements; make sure there are no hidden clauses.

Studying the operations

Look into day-to-day operations and find out how the current owner runs the company. How many employees are there and what are their duties? Look at income statements for the past few years. You will want to engage the help of a financial professional to do a cash flow projection. Find out who the suppliers are; talk to them and ascertain whether they will continue to do business with you if you become the new business owner.

Determining what it will take

Hire a valuation expert to place a value on the business so that you know what you are getting and do not pay more than you should. How much capital will you need to get the business going under your ownership? A legal professional can assist with any questions you have with respect to due diligence, and can help with negotiating and drawing up the necessary agreements. Buying a business is an exciting prospect, especially when you have done all the proper research and are comfortable with the decision you have made. 

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