Due diligence is the process where a buyer reviews and verifies the information supplied by the seller about the business, usually prior to entering into a business sale contract. This could include examining the business’s records and inspecting its physical assets.
When buying a business, one of the main risks that due diligence can uncover is that the equipment is not owned by the seller, or that important agreements cannot be transferred. This can be costly or cause the business to fail. As part of the due diligence process, you should investigate:
- the business’s ability to make a profit
- the condition of the equipment (ie, computers, ovens, vehicles)
- who owns important assets (ie, trade marks, software, licences)
- whether there are any nearby businesses that you will have to compete with.
This guide will provide you with an overview of the due diligence process required when buying a business, and how to complete it.