Buying a business involves a lot of twists and turns, but no part of the process is more important than completing due diligence. It’s like hiring an inspector when you buy a house. Due diligence is a vital step when buying a business. The process should reveal any previously unidentified risks, thereby safeguarding the buyer and allowing the buyer to re-negotiate key terms such as the consideration payable and include any necessary protective terms (such as relevant warranties and indemnities) in the final sale and purchase agreement. In short, the process should reveal the real “warts and all” nature of the target company.
1. Set out a due diligence process – Once you have an acquisition target, you should do due diligence before completing the purchase. The process usually starts with the buyer and seller agreeing to a letter of intent that outlines the framework for arriving at a final purchase agreement. The buyer should be sure to include provisions for due diligence as part of the letter.
2. Assemble your due diligence team – It’s vital to select a qualified team for the due diligence – Uphando Forensic & HR Services can assist you.
3. Conduct the due diligence – First thing you need to do is study the books; An accounting due diligence review is critical for a successful acquisition. The team will need to review the company’s financial statements, budget, projections, tax returns, and other records to analyze the numbers, the idea behind this is to make sure that the figures add up and that the company is worth what you’re proposing to pay.
Secondly, you need to carry out legal due diligence; It’s important to carry out a review of all legal issues affecting the business. These can include pending or threatened litigation, employment contracts, customer and client agreements, etc.
4. Reassess the purchase terms – Depending on what your due diligence uncovers, you can revisit your offer price and other terms in negotiations on the purchase agreement. It’s common for the offer price to be revised downward because of the due diligence review and even for the purchase offer to be retracted altogether.
Should you require assistance with due diligence get in touch with Uphando Forensic & HR Services today!