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Perform your due diligence before you buy a business

On Behalf of | Feb 12, 2020 | Business Acquisition & Financing

Many successful entrepreneurs consider purchasing another business at some point. Whether you find a company that could complement yours or would like to buy out a competitor, you must complete your due diligence before establishing an agreement.

A thorough examination of the business you seek to purchase can prepare you for accepting liability. Depending on the amount of money involved, the information you unveil may not change your mind about the deal. However, you will want to minimize potential surprises and their associated risk, before you take ownership.

What should you consider when you review another business?

Before entering into a formal purchase agreement, perform your due diligence by assessing business records and expansion plans. Some of the matters you would be wise to evaluate include the company’s:

  • Image
  • Cash flow
  • Sales reports
  • Tax records
  • Outstanding debts
  • Contracts
  • Liabilities

You should also verify the Occupational Safety and Health Administration (OSHA) requirements that pertain to operating that business. Making sure the workplace is safe for employees is another way to protect your interests, as well as your production.

Mentor with someone experienced in purchasing businesses

Most business buyers fail because of a lack of experience. Yet, once you find the right organization to acquire, you need not act independently throughout the purchase process.

You will likely want an attorney and Certified Public Accountant (CPA) to assist with your valuation. Additionally, working with someone who understands the unique challenges of an effective business acquisition can help reduce the chances of experiencing costly difficulties once the transfer of ownership is complete.