Buying a business, especially an SME, is a complex, yet potentially rewarding process, and can take weeks or months.
Because buying a business will involve investing a fair amount of money and time, it is critical to do your homework when gathering information about the business.
This process is commonly referred to as conducting due diligence.
The buyer will want to make sure that the representations of the seller concerning the business are accurate and/or reasonable.
Why Do Due Diligence?
Conducting proper due diligence will help the buyer avoid the following problems:
• Discovering that the purchase price of the business is too high
• Misunderstandings as to the type and condition of the business being bought
• Bad financial situations
• Bad management
• Pending lawsuits
• Contingent liabilities
Doing Your Homework
Following is a list of some of the main documents you should expect to receive in the course of your due diligence:
• Key contracts
• Financial statements, including recent audits and projections
• Customer lists
• Employment agreements and organizational charts
• Professional and consulting agreements
• Minutes and consents of the board of directors and shareholders
• Confidentiality and Invention Assignment Agreements with employees
• Litigation-related documents
• Patents, copyrights, and other intellectual property-related documents
• Licenses and permits related to operation of the business
• Employee problems and disputes
• Reasons for selling
• Strategic plans
• Inventory
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