Home  >  Blog Posts & Articles  >  Due Diligence Checklists - 10 Things To Investigate When Buying A Business

Due Diligence Checklists - 10 Things To Investigate When Buying A Business

10 Things to Investigate When Buying A Business

Due diligence checklists are needed by entrepreneurs buying a business so he or she can conduct a careful analysis of any company that seems a good purchase candidate. These checklists also helps the seller know what information to provide.

On the due diligence checklist for proactive business buyers there are:

1. Profit and loss statements and balance sheets describing the company's financial performance represent one of the first things to look at. Older guidelines suggested the buyer get at least a three-year history of income and expenses to determine the degree of profitability, and the list of assets and liabilities to see what changes have been made over the period being reviewed. Because of the recent dips in the economy, it now is recommended that the buyer review five to seven years' of history to gain an idea of the overall financial pattern for the business.

2. Supporting financial documentation to review includes accounts receivables and accounts payables legers, depreciation schedules and related reports. If the buyer requests and seller agrees to a more thorough analysis, the due diligence may include a review of bank records, tax returns, vendor invoices, along with sales and payroll tax filings. Supporting documentation might also include equipment maintenance records and employee files.

3. Premises leases and equipment lease agreements should be reviewed so the buyer understands the lessee responsibilities under those agreements.

4. Additional investigation includes a call to the better business bureau to learn about the company's reputation in the community, and an analysis of account concentration to verify that the business is not relying on just a few customers. Conversations with key employees, major vendors and any landlords will help reveal whether the business has a record of honest dealing and prompt payment of obligations.

5. Are the business permits and licenses valid and up to date? Checking with the issuing agency might be a good idea if there is any question about the authenticity of the documents shown.

6. The list of all assets to be sold to the buyer should be reviewed. It will be referenced shortly before close of escrow. That's when the purchaser should investigate all of the equipment, machinery and other property of the business, to make sure it is in working order, and, if needed, properly registered and inspected.

7. Some detective work on the part of the buyer also is recommended. In the case of a retail business, for example, it's important to "case" the neighborhood to learn how many similar companies are located close enough to the business to be competitors. There usually is no single rule regarding how much competition is too much, so the buyer will need to make a subjective judgment about the possible threat posed by other nearby businesses. The point is to make sure and conduct this part of the due diligence study.

The detective work might include visiting the city's planning department to learn if any dramatic changes are scheduled for the area. More than one buyer has wished he would have done this before buying an enterprise that went out of business shortly afterward, because a large competitor moved into the neighborhood. Or because road or building construction disrupted the auto or foot traffic on which the businesses depended.

8. Industry specific investigation also is recommended. Are new environmental regulations about to make the company's equipment obsolete? Also a problem is out-of-date vending machines that put the business owner at a disadvantage when competing with other businesses using newer vending technology.

Industry specific knowledge also is useful when determining if cost of goods and other business expenses are in line with those of other companies in the business.

9. Right before close of escrow an inventory of all products for resale, as well as parts and supplies should be conducted to make sure the value equals the amount being paid for these assets.

10. Also of concern is that the seller holds clear title to any and all assets of the business being sold, unless disclosed otherwise. The buyer wants no surprises. Since title searches are ordinarily the job of the escrow officer, this aspect of due diligence will likely be covered. But it's a good idea to make sure the escrow holder is experienced at handling business transfers and knows how to do this properly.

Due diligence is a critical step in buying a business and it's important that the process is conducted as thoroughly as possible.

For more info - read more articles and blogs about due-diligence - go to: Due Diligence Articles & Blog Posts

For a list of Due Diligence Advisors & Professionals - go to: Due Diligence Consultants And Advisors

For a list of Discussions regarding due diligence issues brokers and agents have experienced - go to: Due Diligence Discussions

Peter Siegel, MBAAbout This Author: Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor) at BizBen (started in 1994, 8000+ California businesses for sale, 500 new & refreshed postings/posts daily) working with business buyers, business owners/sellers, brokers, agents, investors, & advisors). Phone him at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a puchase of) California small to mid-sized businesses.


Categories: BizBen Blog Contributor, Buying A Business, Deal And Escrow Issues, Due Diligence Issues, How To Buy A Business



  Helpful Resources To Assist In Selling And Buying California Businesses

Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Brad Steinberg, Broker - Laundromat Specialists

Laundry specialists - founded in 1968 by three laundry professionals, PWS is a family-owned corporation. Through the years it has grown to become the largest vended laundry equipment distributor in the United States. Call Brad Steinberg at 323-721-8832 to sell or buy a coin or card laundromat.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews

The Bottomline: What Exactly Is Adjusted Net Income, SDC, And Cash Flow?

The use of add backs & adjusted net income is common among sellers of businesses when showing their financial information/performance. But buyers are cautioned to review financials and tax returns / documents closely. Peter Siegel, MBA with BizBen (ProBuy & ProSell, Financing Expert) explains.

Why Deals Fall Out: Unrealistic High Asking Prices Are Usually The Reason

The unfortunate truth is that approximately 50% of all small business sales transactions fall out. While failed transactions can happen for a many reasons, Peter Siegel, MBA (BizBen Director & Business Purchase Financing Expert) discusses the main reason deals fall through; steep asking prices.

I am Buying A Business: Should I Buy The Property As Well? A Good Decision?

There are advantages and disadvantages to owning commercial property. Here are a few questions to ask when it comes to deciding whether or not to buy the property along with the business. Peter Siegel, MBA with the BizBen ProSell Program reviews this issue with potential sellers and intermediaries.

What Should I Do If Other Buyers Are Trying To Buy The Same Business As Me?

Buying a small business is hard enough when there is no competition, so how might a buyer navigate the process when there is additional competition from other buyers? Potential small business buyers are offered a few key ways that a buyer can beat out other potential business buyers in this article.

Financing A Business Purchase With Limited Or No Real Estate Collateral

In my experience working with the "right banks and financial institutions" repayment ability sometimes overrules collateral pledged by someone needing financing for a business purchase or a down payment. Peter Siegel, MBA (Business Purchase Financing Expert) at 866-270-6278 shares his experience.

Thinking Of Selling My Business: What Factors Create Value And Drive Price?

There are a lot of misconceptions about what enhances the value of a business. The following factors in this Discussion Post on BizBen are aspects of a business that really drives its value and pricing. Business owners thinking of selling should check these out these factors before selling.

Buy A Business Or Start From Scratch? 5 Key Differences For Business Buyers

Some buyers believe it's better to start a business from scratch rather than buy an existing enterprise. While this may be good advice in some cases, usually it's not the best strategy. Here are five tips to help a buyer make the right decision from from Peter Siegel, MBA (BizBen Director).

4 Reasons Why Business Brokers Do Not Cooperate With Other Brokers & Agents

Despite challenges in the business for sale marketplace, some of the business brokers who make a living by facilitating a deal between buyer and seller are known to stand in the way of a completed transaction because of some outdated ideas. Too bad they put greed ahead of the needs of their clients.

See All News, Tips And Events


Business Purchase Financing SBA Loans
Joel Miller Senior Care Specialist
Brian Loring Business Broker Los Angeles County
Taylorhouseman Laundry Brokers


Auto Related
Business Services
Children Related
Communication Related
Computer, Internet Related
Construction Related
Entertainment Related
Financial Services
Health, Beauty Related
Home Improvement Related
Maintenance Related
Manufacturing Related
Media, Publishing Related
Pet Related
Photography/Video Related
Real Estate Services
Restaurant, Food Related
Retail Related
Service Related
Sports Related
Transportation Related
Travel Related
Wholesale Related

Auto Body Shops
Auto Repair Shops
Bakeries
Bars, Sports Bars
Cafe Restaurants
Car Washes
Cleaning Services
Clothing, Apparel Stores
Coffee Shops
Convenience Stores
Deli Restaurants
Discount, Dollar Stores
Dry Cleaners
eCommerce Websites
Fast Food Restaurants
Florists, Flower Shops
Full Service Restaurants
Gas Stations
Gift Shops
Gyms, Fitness Facilities
Home Health Agencies
Hotels/Motels
Ice Cream Shops
Juice, Smoothie Shops
Laundromats
Liquor Stores
Markets, Marts
Nightclubs
Pizza Restaurants
Postal, Shipping Stores
Preschools, Day Care
Print Shops
Salons, Beauty Shops
Sandwich Shops
Smog Test Only Shops
Smoke Shops
Spas, Med Spas
Sushi Restaurants
Tire Shops
Towing Services
Vending Routes
Wireless, Cellular Shops
Yogurt Shops

Alameda
Alpine
Amador
Butte
Calaveras
Colusa
Contra Costa
Del Norte
El Dorado
Fresno
Glenn
Humboldt
Imperial
Inyo
Kern
Kings
Lake
Lassen
Los Angeles
Madera
Marin
Mariposa
Mendocino
Merced
Modoc
Mono
Monterey
Napa
Nevada
Orange
Placer
Plumas
Riverside
Sacramento
San Benito
San Bernardino
San Diego
San Francisco
San Joaquin
San Luis Obis
San Mateo
Santa Barbara
Santa Clara
Santa Cruz
Shasta
Sierra
Siskiyou
Solano
Sonoma
Stanislaus
Sutter
Tehama
Trinity
Tulare
Tuolumne
Ventura
Yolo
Yuba

0 to $99,999
$100,000 to $249,999
$250,000 to $499,999
$500,000 to $999,999
$1 million to $2 million
over $2 million



BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2017, All Rights Reserved

                       
Sign Up Today - For Our FREE BizBen Weekly Email Newsletter
Includes The Best Info On Buying, Selling, Valuing, Financing California Businesses:
Articles, Blog Posts, Podcasts, Videos/Vlogs, Discussions, Q&A, Workshops, Webinars,
Resources. Watch For An Email Confirmation After Signing Up Above. Thank you.


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 
Search BizBen.com

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
5 Myths About Selling A California Business: Best Tips For Sellers & Bro...
How To Determine Whether The Buyer For Your Business For Sale Is Sincere...