Welcome to our latest ‘Business Basics’ blog in which we answer the question: What does ‘due diligence’ mean when buying a business?
In a nutshell, due diligence is defined as ‘the process of acquiring objective and reliable information on a … company as required, especially before a commercial acquisition’ [Macquarie Dictionary].
At JPAbusiness we regularly undertake due diligence for business-buying clients. The process involves checking and verifying information relating to the basic operations and performance of the business our client is considering buying.
Our role is to identify risks and issues, plus any material differences between what has been represented in information previously provided on the business, and what we identify in the due diligence process.
The over-riding purpose of due diligence is to ensure there are no nasty surprises after you buy the business.
If you know the risks before you jump (buy the business), then you can plan your landing (mitigate and manage the impact) during the business transfer. This is what the due diligence process is all about.
Free resources to assist you
We have created a number of free resources to help our readers recognise what they need to look for during the due diligence process:
- template – JPAbusiness Due Diligence Checklist
- eBook – Buying a small to medium-sized business
- eBook – How to conduct due diligence on a business purchase
In using these resources, please keep in mind we always recommend seeking trusted, independent advice when undertaking due diligence on a business; this may involve your business advisor, accountant, solicitor, or all three.
3 core focus areas
As you will see in our Due Diligence Checklist, we recommend that your due diligence should cover 3 core areas:
For every business, the extent of focus and specific verification process in each of these three areas will vary. The extent of investigations will also vary greatly if you are purchasing the ordinary share capital in a Pty Ltd company, as against the business assets and going concern.
Your advisor should help you focus wisely and not waste time and effort in areas that are less of a priority.
If you would like to contact the JPAbusiness team about conducting due diligence on a potential business purchase opportunity, call 02 6360 0360 for a confidential, initial discussion.
James Price has over 30 years' experience in providing strategic, commercial and financial advice to Australian and international business clients. James' blogs provide business advice for aspiring and current small to mid-sized business owners, operators and managers.