A successful business purchase is about doing your homework up front and making sure you are well prepared. In business circles this is called ‘doing your due diligence'.
Due diligence is not just for corporate players buying blue chip, listed companies – it’s just as important in the small and mid-cap business market.
Do I need to undertake due diligence?
Buying a business is one of the most significant investments you will make in your lifetime.
If you were considering buying a business and there was an identifiable risk of a negative event occurring within that business, such as:
- loss of key staff
- loss of key supplier or customer relationships
- default on payments
- legal claims
- market slumps
… wouldn’t you want to know?
Due diligence allows you to recognise those risks before you commit to purchasing, so you can minimise the risk of a negative event impacting your financial strength and wellbeing.
Using the Due Diligence Checklist
When conducting due diligence on a business acquisition there are usually three main areas a potential buyer and their advisor will focus on: Commercial, Financial and Legal.
As advisors, we provide financial and commercial due diligence and often coordinate the legal due diligence with our client’s solicitor.
As due diligence issues often overlap and stretch across more than one of the three main areas when buying a business, we have created a Due Diligence Checklist that helps to cover multiple areas by addressing 5 key components of business:
- Customers and markets
- Inventory and suppliers
- People and processes
- Contracts, licences, registrations and agreements
- Business and financial performance.
The checklist is not meant to be prescriptive in terms of how you conduct due diligence under every circumstance, but instead provide some helpful questions to consider as you work through the process.
Click on the image below to download the Due Diligence Checklist.
The JPAbusiness team regularly prepares custom due diligence checklists for clients who are considering buying a business.
If you would like support conducting due diligence on a business purchase opportunity, contact the JPAbusiness team on 02 9893 1803 or 02 6360 0360 for a confidential, obligation-free consultation.
