Buyer Due Diligence
Buyer Due Dilligence
The decision to purchase another business should be made carefully. Due diligence is the process of reviewing the underlying processes that inform the seller's methods of conducting business. It is, then, a way of ensuring that your purchase is in your best interests. It is generally wise to work with a Bryan business attorney when conducting due diligence so that you make a thorough analysis of the business in question.
The Basic Components of the Due Diligence Process:
In most cases the terms of the due diligence are negotiated using a Letter of Intent. Your attorney will help you with this document, and a set period of time is generally established during which the process is to be completed. The following are the three basic components of the due diligence process:
- Information Requests: As the buyer you will want to request specific information about the target business.
- Research: You will then work with your attorney, and perhaps a CPA, to determine independently facts about the business purchase in question. It is especially important to find discrepancies that can affect the claimed value and value-added opportunities.
- Making a Decision: You need to make a determination on what is essential in the business purchase you are seeking. This is not the same thing as what you would like to have in a best-case scenario. You need to determine whether the price is appropriate, mechanisms that can protect against risks, and what risks you might be subject to. Moreover, among risks that may be involved (and all business acquisitions involve some risk), you need to assess what risks are worth taking.
- Negotiating/Bidding: You need then to develop a strategy for negotiation. Once this is accomplished you will need to develop a bid that is competitive. This bid needs to include price adjustments that will help hedge against risks.
Specific Areas upon Which to Focus
In your due diligence you will need to focus upon specific areas of concern relevant to the business purchase. These include financial statements, operations of the company, marketing strategies used, clientele, employees, investment philosophy and style, performance of the company, company awards, etc.