Whether you’re looking to acquire a business or even sell your own, performing due diligence beforehand is essential. Buying a company, in particular, can be fraught with hidden dangers that can see unwitting investors lumbered with a business that can cost as much as it generates.
While selling a company doesn’t necessarily carry the same risks, due diligence will still ensure that you’re not leaving money on the table in negotiations. But what does good due diligence look like for each scenario?
Below are a few of the things you need to look at to get started.
There are multiple questions you should ask before acquiring a business, so while the following make for a good starting point, they should by no means form the entirety of your due diligence checks.
You may have seen a great business that you think could scale up and do well in other parts of the country, but if it has restrictions in place, such plans are quickly made redundant.
Zoning or legal restrictions can limit a business to one specific area and put a serious dent in any growth plans. Even if you’re happy with the market share the company enjoys now, any future plans are likely to be hampered by such restrictions.
It may still be worth looking into the possibility of lifting any restrictions, but in many cases, the current owner would have already done this if possible.
It pays to have thorough and up-to-date knowledge of the sector the business is in. Armed with this information, you may even be able to source an available company that makes for a better proposition elsewhere.
Knowledge of how competitors are performing is also valuable at the negotiation table, potentially giving you some scope for knocking the price down.
This information could also ward you off an acquisition altogether. If all of a company’s rivals are struggling at the same time, it could indicate that the industry itself is losing its viability.
Legal disputes can drag on for years, with staff complaints potentially costing the business significant sums down the line.
Even though these issues may have occurred before your tenure, it is usually the company that is liable, rather than the departing owner. That means that you could have an almighty legal mess to sort out that you had no initial involvement in.
When selling, your due diligence will be mainly concerned with preparing your company for sale. Proper preparation can not only increase your odds of a sale, but also raise the potential price you sell for.
You could have a fantastically lucrative business, but if that’s difficult to gauge from your messy paperwork, then investors will be none the wiser.
What’s more, disorganised records can also give a bad impression of your stewardship of the company. If important documents aren’t handled carefully, what other parts of your business have been haphazardly dealt with?
Some businesses are so dependent on their owners that they aren’t really viable without them.
If you’re the strongest sales performer, or the only one that can perform certain tasks, it’s time to train somebody else up to take your place. No buyer is going to want a company that’s useless once the previous owner departs.
There are several different ways of valuing a business, and without the help of a professional, you’ll struggle to know if bidders are lowballing you, or offering a great deal.
As somebody so close to the business, you’re not necessarily the best placed to provide a realistic valuation. Get a professional business valuation before you go to market to ensure that you receive a fair price.
The points mentioned above are only some of the things you need to consider when buying or selling a business. If you are thinking of buying or selling a business then Forbes Burton can help you by offering expert guidance every step of the way.
Our experienced advisers can check over potential targets, handle any legalities, and even put your business in front of serious buyers. Call us on 0800 975 0380, or email advice@forbesburton.com for a free consultation to see how we can help.
