Your Due Diligence Checklist to Help Buy Your New Business

Disclaimer: This article is for informational purposes only and does not constitute legal, financial, or investment advice. Always consult qualified legal, financial, and tax professionals before purchasing a business or entering into any acquisition agreement.

Buying a new business can be scary, especially if you have never done it before. There are endless features and factors you need to consider, and it's easy to miss something. Before you know it, you can wind up purchasing a business you know little about, quickly becoming a money pit and now the investment you thought it would be. Due diligence is vital here to ensure that you are aware of every aspect of the business before moving forward with your purchase. To help you make the right choice, we have compiled a due diligence checklist to determine whether the company is a good fit for you before you purchase.

What is Due Diligence?

Before we dive into the checklist, let's recap. Due diligence is an appraisal of a business that shows every aspect of its assets and liabilities, assessing its current value and commercial potential. Due diligence reveals potential issues, operations, and the business's financial health before you purchase, helping you decide whether it is the right choice for you.

Robust due diligence can help you spot any issues that you may not have been aware of through the business's listing, including:

• Incorrect assumptions about the market and growth
• Issues surrounding company pensions or employees
• Outstanding legal claims and debts
• Outstanding tax bills
• Other investors and shareholders
• The company is operationally and culturally the wrong fit for you

Your Due Diligence Checklist

When conducting due diligence for a potential business, focus on several key areas to provide an in-depth look and determine whether it is the right investment. We have broken our checklist into these areas, with considerations that you need to make:

Business Assets

This section focuses on assessing and identifying company assets, including:

• Intellectual property rights, like trademarks and trade secrets
• Fixed and variable assets
• Property and equipment owned

Employees

Understanding employee data, like how many staff are on payroll, company structure, and how employees feel and think about work, is an essential aspect of due diligence, too. You will want to assess:

• Annual leave review process
• Benefits, including pension plans
• Complaints or compensation claims from employees
• Employee leave policies and the staff handbook
• Employee contracts
• Jole roles and salaries for current employees
• Material employee benefits, like stock investment
• Partners, consultants, freelancers, and legal and finance professionals, the business employees
• Previous staff surveys
• Processes for onboarding and offboarding
• Professional experience of board members
• Organisational charts and corporate structure
• Social and cultural approaches, like leadership culture and team activities
• Staff turnover and average employment length

Finances

Assessing a business's finances will help you determine whether it's a profitable investment for you by looking at its balance sheet, trading data, and other key factors. We recommend focusing on the following:

• Annual reports
• Company accounts and statements showing cash flow, profit and loss
• Depreciation and amortisation processes
• Expenses, debts, collateral, and equity
• Information on share values, shareholders, and the percentage they own
• Payroll
• Projections for future financial performance
• Tax liabilities
• VAT statements

Legal

The legal element of your due diligence will involve you looking at the corporate and legal structure of the business, focusing on the following areas:

• Health and safety
• Insurance policies, including claims made
• Litigation issues
• Permits and licenses
• Regulatory compliance
• Supplier and customer contracts
• Tax returns and property

Marketing

Marketing is an essential part of any business, and you need to understand how it currently markets itself. You want to consider the following when assessing the marketing:

• Customer perception, like brand recognition
• Marketing budgets
• Published press releases and articles
• KPIs and measurements used to evaluate performance
• The success of marketing campaigns

Operational structure

The operational structure of a business reveals its strengths and weaknesses, supply chain processes, logistics, sales, and more. This can take up a big part of your due diligence, but it is essential to understanding the business. You should consider the following:

• Business partner contracts, suppliers, shareholders, or other third parties
• Culture and values
• IT equipment and software, including its age and efficiency
• Products and services
• Product trials, warranties, and complaints
• Quotes, pricing, invoices, and profit margins
• Sales processes, distribution, and manufacturing

Find a Business Broker to Help With Due Diligence

Due diligence is a vital part of buying a business, but you don’t need to do it alone! Reputable business brokers can assist with due diligence for buyers and sellers, ensuring a fair sale and that all information related to the business is available. Experts, like Benchmark Business Brokers, offer comprehensive due diligence to reduce your stress and make it easier to buy a business. Contact the team at Benchmark Business brokers to see how they can help with your due diligence today.