So you want to purchase a company or business asset. Buying a company is an exciting venture and you may have high hopes for growing and expanding your business.
But buyer beware: before signing the dotted line, you absolutely must do your due diligence.
A deal that looks promising from the start may have hidden issues that can cost you thousands if not millions of dollars after you complete the purchase. Doing the proper due diligence into a company’s background and operations can save you from experiencing major problems and liabilities down the line. If you fail to do your due diligence, those issues can ultimately overshadow the value of the asset you just purchased.
At Holmes Business Law, we take due diligence seriously because it means protecting our clients. While you can and should do your own due diligence, it’s important to hire an experienced business lawyer to make sure you’re totally covered.
Why Due Diligence Matters
What happens if you fail to do the proper due diligence into a business asset purchase?
Due diligence is like hiring inspectors to check the foundations of a house before putting down a payment. If you fail to look under every part of the property, you could end up with an unfortunate surprise after the asset transfers to your ownership.
At that point, you’re likely to be stuck with the responsibility – and the bill.
Below is a general due diligence checklist with the first 8 of 16 items to cover your bases in a business or asset purchase transaction. At the end of the list, you can download a PDF of the full 16 items, formatted as an actual list to check off as you go.
For a due diligence review catered to your unique asset purchase in the greater Philadelphia area, call the Holmes Business Law offices now at 215-482-0285.
Business Asset Purchase Due Diligence Checklist
1. Organizational Structure and Standing
If you’re aiming to buy a company, you must first look at its basic foundations. Is the business entity filed correctly with all the proper licensing and good standing to operate?
If you’re buying a company, your foundational due diligence should include:
2. Company Financial Data
A company's financial health is one of the biggest factors in determining its value and purchase price. As a buyer, you must know exactly what you're getting into, even if it's not perfect.
Your due diligence should include the company's:
3. Physical Assets and Equipment
A company's physical assets can add up and affect a company’s sale price. The physical assets may even be the primary subject of your purchase. To determine their value, you will need:
4. Employees and Employee Benefits
If you’re buying a company and you intend to keep it running, you need experienced and knowledgeable employees to help that process go smoothly. Payroll may also be one of your biggest expenses after the sale, so you must know what you're getting into. You'll need:
5. Professional Engagements
A company needs good professionals to help it operate. Your due diligence should include:
6. Real Estate Assets and Interests
Real estate is another major business asset with significant value. You’ll need:
7. Necessary Licenses and Permits
Local, city, state, and federal laws and regulations can make a huge difference on a company's bottom line. Before purchasing a business, you should request:
8. Intellectual Property Rights
On the other hand, you may be buying a company primarily for their intellectual property, not for their physical or real estate assets. A brand, trademark, patent, or copyright could be worth millions of dollars – far more than a company's other assets. You should check:
These are just some of the items needed during the Due Diligence period.
For a full, business purchase due diligence checklist, download our FREE resource, "16-Point Due Diligence Checklist for Business Asset Purchases" at the link below!
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. When you're looking for a business lawyer in Philadelphia, the Main Line or New Jersey, we can help.
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