Tips for Conducting Due Diligence When Purchasing a Small Business
Kapish Haldia believes that, purchasing or investing in an existing small company provides a number of benefits, including a pre-existing facility, a functioning workforce, and a client base. However, before concluding any agreements, make sure you do your due diligence thoroughly. You want to know whether the company you’re thinking about buying has any legal or financial issues.
Make certain you engage a company attorney and an accountant.
Don’t go it alone when it comes to due diligence. Use the services of a competent attorney and accountant to help you through the procedure. It’s well worth the money. For small firms, the due-diligence procedure may be time-consuming and difficult. It comprises going through a company’s documents, verifying references, double-checking everything, and searching for any hidden concerns.
Make a list of all the documentation you need from the present company owner or possible partner with the help of your business lawyer and/or accountant (if you are investing in the small business).
Examine the small business’s financial soundness and make sure its finances, assets, and obligations are all in order. Examine historical patterns, predictions, and tax risks, among other things.
Due Diligence in Finance
Kapish Haldia pointed out that, examine the income statements, balance sheets, and cashflow statement from the company’s annual and quarterly reports. Examine each product’s and service’s sales and gross profits, as well as the schedule of accounts receivable and payable, inventory, asset breakdowns, past projections and actual results, future projections, capital structure, tax details, debts, internal control procedures, and whether there are any current investors or shareholders.
Due Diligence in Law
Request copies of all the company’s contracts with property owners, suppliers, and workers, among other things. Get a copy of the company’s leases, purchase orders, distribution agreements, sales contracts, employee and independent contractor agreements, intellectual property (IP) agreements, articles of incorporation, and business registration papers, and evaluate them.
You’ll also want to discover whether any lawsuits are currently underway. If that’s the case, make copies of any insurance papers that could be relevant to the case.
Due Diligence in Operations
Part of the due-diligence process include scrutinizing the company’s operations, including its business strategy, client base, pricing points, marketing strategies, industry and community reputation, and rivals.
In Kapish Haldia’s opinion, examine the firm’s human capital, including each employee’s job and salary/bonus, the company’s employee benefits plan and PTO policy, any prior employee-related litigation and workers’ compensation claims, and if the current level of staffing satisfies the demands of the company.
The due-diligence procedure entails a lot more, which is why you need enlist the assistance of specialists that are knowledgeable in this field to assist you.
