If you are considering buying a business, this is quite possibly the biggest financial decision you will ever make; even more so than purchasing a home. After all, your business is your livelihood. If your business isn’t successful, it can have a devastating trickle-down effect. Prior to buying an existing business, you will want to evaluate all of your options and risks prior to making any binding decisions and/or signing on the dotted line.
That being said, nothing is more important than doing your due diligence. As defined, “due diligence,” in regard to buying a business is, “a comprehensive appraisal of a business, undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.” By taking the time and effort to do your homework, you can possibly save yourself some unnecessary, costly and nasty surprises.
Due diligence is by no means a “general” investigation. Due diligence requires an in depth, almost invasive (if you will) investigation prior to buying a business. Even if you think a seller is being completely forthcoming, you owe it to yourself to verify the information you have been given. Don’t be worried about offending anyone; again, this is your livelihood. It is imperative that you enter the “deal” with eyes wide open!
So, what does due diligence involve? Excellent question! Below are some tips that may be helpful when buying a business to make sure you know exactly what you are getting into.
There is no shame in asking (an abundance) of questions. If you ask questions and are met with resistance, or have an uneasy feeling, this (may) not be the deal for you. If it doesn’t feel right… it probably isn’t!
With the assistance of your attorney, the due diligence process should involve all concerned parties; meaning both buyers and sellers. As a buyer, if you are not completely satisfied with the information you have gathered… WALK AWAY!
Sarah E. Holmes is a Philadelphia business attorney and strategist that helps start ups and established businesses looking to expand, protect their assets and increase their profits in an approachable, down-to-earth way.