Due Diligence

photo_biz04Due diligence involves researching and analyzing a company in preparation of a buy/sell transaction. This is the formal review of the opportunity by you and your advisors where facts are assessed and the merits of the transaction are put into perspective.

Your obligation is to fully explore all relevant factors affecting your purchased decision. These factors include anything that directly or indirectly, positively or negatively, affect the purchase price, the perception of value, and the future of the business in your mind. These factors may include, but are not limited to:

[column grid=”2″ span=”1″]

  • Financial Performance
  • Health of Industry
  • Products and/or Services
  • Location
  • Market Size
  • Business Growth Potential
  • Books and Records
  • Customer Base

[column grid=”2″ span=”1″]

  • Concentration of Customers
  • Competition
  • Contracts in Place
  • Supplier Relationships
  • Trained/Expert Employees
  • Management
  • Furniture, Equipment, & Fixtures
  • Inventory



The Seller’s Obligation To The Process Is To:

  1. Provide information requested by you in a timely fashion

  2. Ensure the accuracy of the information

  3. Disclosure any material facts that may influence your decision to purchase the business.

Obviously, many of the items you seek (see above partial list) during the due diligence process are subject in nature and come from external sources. Other items are under the control of management and can only be known to the seller, such is typically the case with books and records materials. The process can be complex and time-consuming for you and the seller alike, but the end result must be your satisfaction with the due diligence process before the transaction can be completed.

Additionally, you may request seminal documents containing evidence of the company’s operations, such as might be found in:

  • Legal structure (organization) of the company
  • Insurance policy information and loss run records
  • Personnel policies and employee manuals
  • Contracts, licenses, agreements, and affiliations
  • Technology, trade secrets, and intellectual property
  • Internal Revenue Service (IRS) records and actions
  • Organizational structure
  • Core competencies in Operations
  • Outstanding legal actions and disputes
  • Working capital, equipment and real estate loans

The due diligence process may take considerable time, but its satisfactory completion is a critical part of any transaction and should be considered the foundation of the entire deal.