People often wonder how businesses go through the process of being bought out. It is such a long and tedious process for the business owner. More goes into a business take over then what employees even know about. The business owner will have to work with the seller through many of the processes of the sale in order to complete the takeover. One such task that takes time is due diligence. This is the process of taking a detailed look into the business you are looking to purchase.
There are a number of things required in putting together a due diligence report on a company. You must review the fiscal performance, inventory and property, staff, operations, clientele, marketing, vendors and competitors. The aspects of the company need to be thoroughly reviewed to decide if this company if going to be a fit for you to purchase. The due diligence process is one that can take several weeks and should not be rushed. If the seller is over eager and rushing this process it is a sign to be weary.
Every business type is different and will therefore need to be looked at differently. The uniqueness will determine the type of due diligence that you have to complete. For instance, if you are buying a retail business verse a company that offers services or perhaps an all cash business verse a large manufacturing company. They all require a different process to ensure that each unique aspect of the company has been thoroughly reviewed.
In reviewing the fiscal performance of a company you will want to review past and current financial records. It is important to see what bills are coming in to determine what money is going out on a regular basis. It is also important to get a record of all incoming funds. It is necessary to determine areas that are running fiscally sound and those in need of improvement. You also need to have a very good idea of all account receivable. If you see that a firm is lax in their collections you will want to know this in order to develop a plan of attack when you take over. It is necessary to review anywhere from 1-3 years with the information to get a current look at the financial systems of the company.
Due diligencealso looks into the company’s current and historical inventory and assets. An example of this would be a restaurant. Ovens, refrigerators, tables and linens are all part of the assets owned by the company. Take into consideration also all of the food products and staples that the firm has. These are all things that due diligence takes into consideration.
You will want to discuss the staffing also. You need to determine which personal is full time, part time, what benefits are offered and employee plans. It is a discreet process that should be handled very carefully. Many times employers do not want employees to get wise of the company be sold. My husband’s company has been discreetly purchased over three times. Literally he was not aware until the purchase was complete and the deal was done.
Due diligence also looks into the operations of a firm. If you are a gas station you need to buy gas. A liquor store buys liquor. These are the things that go into the operations of a company. Some company’s use sophisticated systems in the daily operations of a company while others are operated in a more informal manner. You need to determine what you are getting into and due diligence when you determine the way a company operates. It is also important to determine what vendors are currently being used and what costs are associated with them.
Clientele and marketing are important in learning about before taking over a firm. You may have a preconceived notion of what type of clients and marketing are used when in reality something totally different exists in this climate. Due diligence determines who the clientele are and what type of marketing programs work for them.
Due diligence also takes a detailed look at the competition within industries. You will need to determine if competing in a highly competitive industry is what you are up for when taking over a firm. It is important that you recognize who your main competitors are to determine if they are really a threat and you are a little fish in a big sea or if the opposite is true.
Once you complete a thorough review of a company you are interested in sit down and analyze the due diligence report. The money spent on this process is equivalent of a home inspection before final purchase. At the due diligence point it is a contingent offer after the final review is when you decide to continue on with the sale, to ditch the sales, or whether you need to lower your offer based on the information found.